Could decoupled debit cards
revolutionise the payments industry? A recent study by researcher
Aite Group in the US pointed towards a healthy consumer market for
decoupled debit cards. Attractive rewards schemes will attract
customers, concluded the group; however, there remain several
challenges to overcome before these products make it into the
financial mainstream.

Decoupled debit schemes are card products that can be linked to any
bank account with transactions being routed through automated
clearing house (ACH) networks. This breaks the link between a
customer’s current account and the debit card generally issued as
part of that account. Although HSBC has been piloting several
decoupled debit card schemes in conjunction with pharmacy chain CVS
and supermarket consortium Pathmark, it was the decision last year
by Capital One to release a decoupled debit card that put the issue
firmly on the map (the company has picked up the RBI award for
product innovation, see Best of the

The title of a report released by Aite Group at the time of the
Capital One launch – The Next Big Thing in Cards – formed
a suggestion that decoupled debit cards would mark a sea-change
within the cards and payments space. A more recent study released
by Aite, entitled Who Wants A Decoupled Debit Card?,
suggests that a sizable market for decoupled debit cards currently
exists in the US. An online survey of 500 banking consumers
revealed that approximately a third of them were interested in such
a product.

Since one of the main attractions of this new concept is the high
points available from rewards and loyalty schemes, those who
expressed a solid interest in decoupled debit cards tended to be
‘rewards addicts’ – above-average spenders who often shopped for
more than one adult.

However, the majority of US banking consumers do not easily fit the
above description, which makes much of the doom-mongering focused
on institutions such as Bank of America and Wachovia, which rely on
their demand deposit account business and the corresponding fees,
seem somewhat overstated. “The majority of US consumers are not
‘addicted’ to rewards programmes,” says Judith Fisherman, an
analyst at Aite Group, but adds that “there is a very interesting
slice – and not a tiny or inconsequential slice – that will chase
the products that benefit them”.

Because decoupled cards use the ACH networks, the time-lag involved
in processing transactions means that there remains a risk that
there will not be sufficient funds in the bank account. The lack of
clarity surrounding this as well as other risk management issues
such as account validation is one hurdle that these products will
have to overcome.

Another threat to the success of these decoupled debit products is
whether the consumer will be able to fully understand them. As the
card will be effectively run through two separate institutions –
the ACH and the issuing bank – confusion may arise when dealing
with issues such as disputed payments or a lost or stolen card.
However, Fisherman believes that, given the type of financially
savvy consumer that will be attracted to decoupled products, this
will not be a significant problem. “These are consumers that have a
strong handle on what is in their wallet,” she explained.