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Comment: Decoupled debit - a lucrative option for UK retailers?
Archived article dated Wednesday July 16th 2008
According to figures from the UK's payments trade association, APACS, debit card use has risen sharply since its launch in 1987 whilst the credit card share of the market has stagnated both in terms of value and volume of transactions.
By Philip McCarthy-Clarke
The debit card has become the default daily payment instrument for UK households, accounting for three out of four card transactions. Experts predict that debit cards will account for around 62% of the increase in UK domestic payment volumes over the next ten years.
Aside from the trend towards debit cards, consumers have also exhibited a preference to take financial products from non-banks. The rise of retailer or brand-issued credit cards in recent years is evidence of changing consumer and card issuer behaviour. For consumers, credit cards offered by their preferred brands, retailers and loyalty schemes have provided a more compelling value proposition than those offered by banks - differentiating through loyalty rewards, cash-back and personalisation options rather than competing head-on with generic bank cards. However, co-brand card issuers, are now experiencing more difficult market conditions as consumers watch their spending and credit becomes less accessible.
It is exactly these trends which have created a stir in the US and encouraged non-banks to respond to these market conditions and launch 'decoupled' debit cards. Do conditions now provide UK retailers to follow suit and tap into the growing debit card market?
“Decoupled debit” differs from traditional bank debit card products as the card is not issued by the consumer's bank and typically attracts some form of consumer rewards for its usage. This means a decoupled debit product can be offered by any organisation to anyone with a current account - regardless of where they bank. Direct Debit is then used to align the card to the consumer's preferred bank account for settlement. The card itself can be used in exactly the same way as any other debit card product for point of sale, online and cash transactions and unlike credit cards there are no bills for the cardholder to worry about at the end of the month.
These cards are gaining traction in the US, with new offerings from major retailers like CVS pharmacy and Paypal already live. Should these cards come to the UK market, they would instantly turn the provision of debit cards into a competitive environment.
“Decoupled debit” offers significant potential benefits for retailers. Extending customer touch and helping to build brand advocacy whilst even greater value could be unlocked with retailers being able to capture and interpret their customers' wider shopping behaviours.
Consumer research in the UK indicates there may be a large potential market for such a decoupled debit card offering. Over two thirds of those questioned in a recent VocaLink survey said they would be likely to apply for such a card. Many are drawn by the potential reward incentives provided through the card, with one respondent saying, “I like the idea of earning rewards whilst spending money that you actually have rather than living on credit.”
The concept of decoupled debit in the UK and wider Europe has the potential to repeat what happened in the co-branded credit card industry, opening the door for retailers to extend their reach into the wallet of UK consumers.
Philip McCarthy-Clarke is Proposition Development Director at VocaLink
Tagged as: Decoupled debit | credit cards | banking
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