MasterCard could take the risk of offending banks because the network changed from a bank-owned association to a publicly traded stock company in May 2006. Still, it’s a sensitive issue, and in a prepared statement, MasterCard’s Richard G. Lyons, global product group executive, is careful to note that MasterCard isn’t trying to disrupt traditional bank-consumer relationships. “We supported Capital One’s strategy to introduce its innovative debit offering to compete in an open-market environment,” he said. “MasterCard understands that consumers value choice on how to pay for their purchases and how to access their funds. <strong>The</strong> Capital One debit product serves as a companion to, rather than a replacement of, the core banking relationship, at the consumer’s discretion.” ‘Not for Everyone’ HSBC, meanwhile, also is rolling out a decoupled debit product with merchant partners. <strong>The</strong> cards currently are offered at the grocer Pathmark Stores Inc. in a select number of locations in New York. HSBC’s other merchant partner is CVS Caremark Corp., which has 6,245 pharmacies in 40 states and the District of Columbia. <strong>The</strong> card debuted at 141 Indianapolisarea CVS pharmacies last October. Daniel Eckert, head of venture acquisition and development at HSBC card and retail services in Prospect Heights, Ill., won’t say how many cards HSBC, the nation’s No. 3 thirdparty private-label card issuer, has HSBC’s Eckert: “<strong>The</strong> interest among potential card sponsors has grown exponentially.” issued or provide transaction volume. “Decoupled debit is only five months old as an industry. This is still very much based on a test-and-learn feedback loop,” he says. Even so, he adds, “<strong>The</strong> interest among potential card sponsors has grown exponentially. We will have a lot of new [deal] announcements in the first quarter of 2008.” For now, HSBC’s decoupled debit card runs on the Tempo Payment Network, which has about 200,000 acceptance locations and uses the ACH to debit funds from cardholders’ DDAs. (In 2006, HSBC participated in an $8.7 million investment in Tempo.) Eckert says that may change for future card sponsors, indicating it might be possible for merchants to work with Visa, MasterCard, or American Express Co., though he provides no details. For its part, Tempo Payments shifted its strategy last summer. After targeting retailers almost exclusively since its Debitman days as a low-cost, PIN-based alternative to the major card brands, San Mateo, Calif.-based Tempo now appeals to financial institutions by offering a payment platform that accesses demand-deposit accounts. “We are the only ones outside of Capital One that has built this kind of platform,” says Mike Grossman, Tempo’s chief executive. Grossman adds that some financial institutions have signed up for the product, though he refuses to name them. “It’s clear that several big financial institutions will join HSBC and Capital One,” he says, noting that some, but not all, banks see decoupled debit cards as an opportunity. He adds that highly motivated institutions could implement a decoupled debit program through Tempo in as little as three to four months. Speculating on which banks might soon enter the decoupled debit arena, Aite’s Bézard says, “It’s not a product for everyone.” He explains that decoupled debit makes sense for issuers such as Capital One and HSBC, neither of which have a lot of depositors. “Initially, the most interested (institutions) will be those without traditional checking-account relationships,” Bézard notes. Looking ahead further, Bézard thinks banks that specialize in cobranded and private-label credit cards eventually will embrace decoupled debit. Prime candidates could be Citigroup Inc., General Electric Co.’s GE Money unit, Chase, and Wells Fargo & Co. A ‘Powerful Package’ More new twists on debit are coming from PayPal. About six years ago, PayPal began offering its business customers a debit card. Chase issues the MasterCard-branded card. Unlike the new decoupled debit cards, the PayPal card draws funds from the holder’s PayPal account, not a checking account. From a regulatory standpoint, the accounts are considered stored-value accounts, Bézard says. PayPal recently began offering a “plug in,” a type of software application the user downloads to a Web browser, that generates a one-time-use MasterCard debit number to pay for an online purchase. <strong>The</strong> plug-in enables users to use PayPal even at sites that don’t accept PayPal. Chris George, senior director of financial products at PayPal in San Jose, Calif., adds that consumers have expressed interest in a physical debit card product, an idea PayPal is evaluating. 26 • digitaltransactions • February 2008
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