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Friday July 09, 04:55
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Debit Cards Are Central To Issuers’ Profitability
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Debit cards, traditionally a substitute for cash, are migrating into the credit card payment space, meaning that issuers need to continue growth rates without levying fees on cardholders or changing existing debit economics. With debit now “the primary growth engine for many payments organizations”, according to Lafferty Publications, Edgar Dunn & Company advises that current growth has implications for card issuer profitability. Even after recent reductions in interchange, issuers lose money on debit card transactions, yet low marginal costs mean that incremental transactions improve profitability with per-transaction interchange.
For this reason, “smart debit strategies must aim to improve the economics of the debit card and address inter-relationships … between the various payment methods that access the current account”, EDC analysts Ken Howes and Hugh Gallagher recently wrote in Cards International. Debit card usage fees are not a solution, in light of US market trends and evidence from European markets where debit cards incur a per-transaction fee. Instead, Howes and Gallagher advise issuers to investigate rewards programs, or product bundling where debit card features such as security, increase in relation to the level of the service.
(Lafferty Publications)
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