Far from being a force for revenue decline in the card industry, the Visa/MasterCard lawsuit and the elimination of the 'honour all cards' rule presents an opportunity for savvy issuers to recoup losses by encouraging the use of debit cards for recurring bill payments and online transactions, says Dove Consulting.
Visa and MasterCard last month agreed to pay a total of $3 billion to settle a class action lawsuit brought by US retailers campaigning against high debit card charges. In addition to the pay-outs, the out-of-court settlement also signalled a forthcoming reduction in debit card fees and changes to the honour all cards rules which would allow retailers to reject signature-based debit cards at the check-out.
Industry pundits have forecast that debit revenue losses will reduce overall card issuer and bank earnings by one to two percent as a result of the suit.
Bank of America, for instance, has said that it expects the settlement to decrease earnings this year by $60 million, or 4 cents per share. In 2004, the bank expects to lose $200 million after taxes, or 12 cents a share.
However, Richard Crone, vice president of Dove's financial services practice believes that changes to the honour all cards policy opens up new market opportunities for debit acceptance, especially for recurring bills and electronic bill payment. He points out that only 3% to 5% of the more than $36 billion in recurring bill payments are currently made with a card-based instrument.
"Lenders such as credit card issuers, mortgage companies and many other recurring billers and online merchants can accept debit cards, increasing the opportunities for significant increases in electronic payments," he says.
The re-pricing of signature debit will also provide a more attractive alternative to Automated Clearing House (ACH) items for enrolling consumers for Internet Bill Presentment and Payment, says Crone.
Dove estimates that as many as 150,000 consumers enroll with billers each day for IBPP, and they prefer to use their debit cards when registering for electronic payment. Up until now, billers that wanted to accept only debit were also forced to accept credit because of the honour all cards rule.
In the end, says Dove, "the unbundling of credit and debit will actually increase card issuer and bank revenues just as it did in other industries including computer software and telecommunications".