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The real story about store-branded debit cards

Since the financial crisis millions of consumers have moved their purchases from bankcards to debit cards to help reduce their spending, and retailers are also diving into the debit mix with their own branded debit cards.

January 15, 2012 by Suzanne Cluckey — Owner, Suzanne Cluckey Communications

ATM deployers and network operators know how changes in banking transactions can affect their business. With a drop of 6 to 10 percent a year in check writing and the rise of services such as remote deposit capture (which 25 percent of small business are expected to be using within a few years), ISOs have seen a downward trend in ATM visits. Now they could also be seeing new competition from another source — store-branded debit cards.

Since the financial crisis millions of consumers have moved their purchases from bankcards to debit cards to help reduce their spending, or because they can't get credit. In 2009, debit transactions far exceeded credit purchases for the first time in history and the trend is expected to continue.

So it should come as no surprise that retailers such as Target and Nordstrom are also diving into the debit mix with their own branded debit cards. And ATM deployers have to ask themselves — Is this a new rival for market share or the same old debit card in brand new drag?

"I'd also like cash back, please"

In the case of the Target debit card, the customer authorizes Target to withdraw the amount of the customer's purchase (and up to $40 in cash back) from the customer's existing checking account. As with Target's other "Red Cards" — the store's closed-loop charge card and its Target Visa card — the customer receives a five percent discount on their entire purchase when they pay with a Target debit card. It's a win-win for the customer who gets a price break and the retailer who creates a captive consumer.

The debit card is free and Target charges no fee to the consumer for its use — even when they take out cash with their purchase. This additional cash back service makes it more convenient and potentially less costly to get cash at the register instead of making a separate trip to the ATM.

So the question ATM deployers have to ask is whether this is just one more way that innovations in the financial world are eroding their business.

A new threat or not?

A store debit card is no more of a threat than a general purpose debit card said Netta Feddis, vice president and general counsel at the American Bankers Association.

"These [store] cards aren't going to drive payment trends as much as the ability to use general purpose debit cards for more transactions, which are the small-dollar transactions, and other emerging alternative payment systems that compete with cash, Feddis said. "I'm not seeing a lot of impact [from store debit cards] because anyone who gets [one] will still have to have a card that they could use at the ATM," Feddis said. "If they want to use a debit card elsewhere or if they want to get cash, they're still going to have to have a general purpose debit card."

Sam M. Ditzion, president and CEO of the Tremont Capital Group also thought store debit cards would have a negligible impact on ATM transactions. "I think a couple of larger retailers are interested in this but it's not going to take over the payments industry," Ditzion said. "So I think it will be relatively small scale, number one. And number two, in general the people who are going to be doing this weren't carrying cash anyway."

According to Feddis, the risk to ATM deployers is less from store-branded debit card spin-offs than from the increased use of traditional debit cards and emerging payment technologies. Still, Feddis said, "Cash will never go away."

Perhaps not. But also not going away are the technology developers who seek to bring consumers and bankers ever closer to a cash-free universe.

About Suzanne Cluckey

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Suzanne’s editorial career has spanned three decades and encompassed all B2B and B2C communications formats. Her award-winning work has appeared in trade and consumer media in the United States and internationally.