Decoupled Debit Cards
What if you could take the average 7-10 cards that you carry around in your wallet and put them all on one card?
What? How is that possible?
The idea isn’t new by any means and it’s been attempted before, though not very successfully. However, with debit and credit card usage on the rise, there are those who are looking to cash in on the money cow as best they can. With credit card debt jumping to the billions and debit card usage increasing an average of 17-20% per year, interchange fees are a great source of revenue for anyone providing a card. Imagine the money coming in for a company with one card and several different bank and credit card accounts on it.
Ok, but what are interchange fees?
I’m glad you asked. Interchange fees are what the merchant’s bank pays the cardholder’s bank for accepting the card. The way it works is that a consumer opens their account with whomever they chose to. When you open a checking account, nine times out of ten you get the debit card along with it. Every time you use your debit card - the mall, Wal-Mart, Blockbuster, Home Depot - those merchants pay your bank a fee. It’s a nice source of income for banks and credit unions.
Now companies like Capital One and HSBC are looking to corner the market on these interchange fees by offering a card that allows you to link all of your checking accounts to the one card. Although attempted in the past by other companies, the idea of a universal card failed because it wasn’t accepted by most merchants. The card required merchants to purchase new equipment on top of paying the interchange fee, so ultimately there was no benefit to them and they chose not to accept the card. Capital One has circumvented this problem by pairing with MasterCard so that these new debit cards will be accepted wherever MasterCard is accepted and merchants don’t have to buy extra equipment.
The Sell
1.) Convenience
This is a big selling point and one that will get a lot of people on the bandwagon for this card. I personally have three credit cards and two debit cards. Having five cards to keep up with is a lot, but losing one is nothing short of a nightmare. So, having one card with all of my accounts linked is tempting. Plus, if the card is lost or stolen, you only have to call Capital One. You’re not held liable for fraudulent charges and they return the money back to the originating account within 24-48 business hours.
2.) Rewards
Many debit card issuers have cashed in on the benefits of offering their customers rewards and it is becoming a trend that most people now expect. I was floored when I discovered I didn’t get rewards with my debit card at my credit union. However, Capital One’s new universal debit card will offer a rewards program similar to what credit cards offer. That will be a huge advantage to consumers who actively use credit cards to rack up reward points and mileage.
3.) No Fees
Capital One said they will not be imposing any fees for this debit card; however, they caution that other banks may impose fees for choosing an outside debit card over one in-house. In all likelihood, this won’t happen if banks and credit unions wish to at least keep the rest of the consumer’s business; however, it is a possibility due to the loss of income from interchange fees.
The Drawbacks
1.) Restrictive Spending Limits
According to Capital One’s website, consumers cannot spend more than $500 a day or $1200 within a 10 day period. While many don’t spend over $500 a day, smaller and more frequent purchases could add up to be well over $1200 within the 10 day period. That’s quite an impact considering most debit cards issued by banks and credit unions only restrict purchases and withdrawals to a daily limit, and it is often much higher than $500.
2.) Bank-side fees and interest rates
Something else to consider is that by using this universal card, your bank or credit union will lose a portion of their revenue. While that may not mean much to you now, consider the affects it could have on you later. Losing income means that banks and credit unions have to compensate in other ways - such as fees imposed for using the universal card, or higher loan rates and lower savings and CD rates.
Overall, the program has some very attractive advantages and it may be worth it to many individuals to pursue this avenue. Currently, the card is only available to those who have an active Capital One checking account. It will be rolled out to the rest of the country sometime this summer. HSBC is still working on their card, which will allow consumers to combine their credit cards on one card, but there hasn’t been any mention of when it will be released as of yet.
What do you think? Worth it, or not?
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May 8th, 2008 at 10:57 am
I can guarantee you that the credit card companies will do something to make up the lose of any interchange fees they may lose from these cards. The amount of money they make from those fees is absolutely astounding and way too much of a profit for the industry for them to just give them up. Unfaircreditcardfees.com has a lot of good information about how much money the credit card companies are netting from interchange - I’ve done some work with them before.
The interchange fees are also currently being looked at by Congress along with all the other fees that are killing consumers right now. Hopefully more light will be shed on those fees that no one really even knows about soon, but right now the credit card companies love them and they’re not going away.
May 9th, 2008 at 11:09 pm
Well, interchange fees don’t see the light of day in most cases because consumer’s very rarely see them. I think the only way the consumer sees them is if they pay their taxes with their credit card…which the IRS worked out special with credit card companies. But, you’re absolutely right in that if these decoupled cards take off, the credit card industry as a whole will suffer with the loss of income - not to mention banks and credit unions. It will be very interesting to see where this all leads!
May 13th, 2008 at 9:32 am
You’re right about consumers rarely seeing these hidden fees. The only time they do see them they probably have no idea - like when small businesses have something like a $10 minimum purchase for cards so that they ensure a profit off the sale because of the interchange fees. Also, a lot of businesses have to raise prices because of the fees - which is passing them off onto consumers, but consumers don’t directly see those either. I’ve seen a fair amount of news about how gas stations are even offering discounts to people who pay with cash because the fees are so high these days. It really will be interesting to see where this all leads - I mean you’d think these fees would be going down since the price to make electronic transactions has actually been going down these days!
May 14th, 2008 at 9:46 pm
Good point splitscreen; however I don’t see the price going down on these interchange fees, especially if the Fed gets their way or the Credit Cardholder’s Bill of Rights is passed. That’s a serious loss of income for credit card companies and I’d almost be willing to wager that they’ll be increasing the rate on interchange fees a little bit. But, only time will tell.