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Industry News Study: Banks missing opportunities with debit card programs 2010-07-15 Debit card programs are an important part of both a bank's customer loyalty solutions and its revenues. But a new global study from the payment processing firm First Data says that many banks aren't putting enough resources into developing their debit card offerings. The Worldwide Opportunities for Debit study examined programs from 34 banks in various markets worldwide, and found that debit card use has experienced strong growth over the past few years. That rise in use, the study found, was due to two major factors. The first was the growing shift - especially among younger consumers - toward electronic payments instead of cash. Following the recession, consumers have also increased their debit card use to get a better handle on budgeting by limiting the amount of money they put on credit cards. But as consumers have shifted their behavior toward debit cards, the study found that most financial institutions have failed to make significant investments in their debit card programs to take advantage of the shift. "We found a disappointing lack of product innovation and analytics in debit, even among institutions that are sophisticated on the credit card side," said Brian Riley, research director of bank cards for TowerGroup. Researchers say that in order to use debit card programs to increase customer loyalty in banking and maximize profitability, banks will need to put an increased emphasis on understanding their various customer segments. By better analyzing their bases, they will be able to create more targeted rewards programs that are relevant to customers. "Banks can capitalize on consumers' move to debit if they develop a sophisticated understanding of the economics of their debit offerings and put the same innovative energy behind debit as they do behind credit," said Paul Stanley, a senior vice president of Financial Services for First Data. Researchers also said that various financial legislation efforts worldwide could have a negative effect on debit programs, and will hurt their ability to pay for better customer programs. While U.S. banks have already begun to adjust to the impact of laws requiring customers to opt-in to overdraft fees, the impact of legislation that would put a cap on debit card interchange fees remains to be determined. The specific rate cap - which would be set by the Federal Reserve - has not yet been decided, but in an interview with the Cincinnati Enquirer, Standard & Poor's analyst Erik Oja estimated that the regulation could cut total bank revenues by as much as 2 percent. 
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