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"Only a few years ago, it was hard to even consider putting those three words in the same sentence (Debit Card Profitability), but we have seen a significant change in banks approach to debit cards over the past decade and many banks are even ready to treat the debit card as a product in its own right rather than just an ingredient or component part of the current account. We have been working with a number of banks through this journey which usually starts with acknowledging that the debit card is not recognized as a product in its own right today. This can usually be established quite easily:
If a bank can answer “yes” to all of these questions, then it is likely that they are already a long way down the path the debit card profitability:
Do I have a P&L for my debit card (including allocated debit card costs)? Does the whole of my organisation understand the value debit cards bring? Is it easy for us to articulate the benefits of making changes to the debit card? Does the branch network understand their role in debit cards?
In our experience, there are only a handful of banks globally who can genuinely answer “yes” to the above questions. This is not because the debit card is an inferior product (far from it), but due to its legacy. Traditionally debit cards have been associated more with the retail/brand side of banking than credit cards have and rarely do they have their own separate operation like credit cards do. There may well be a debit card management team in place, but the resources that these teams call upon can often be from other areas of the bank, whereas credit cards tend to managed by a team of dedicated specialists with specialist resources at their disposal.
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But why change?
The days when the debit card is only seen as an access point to the current account are over. For the first time in many markets we are seeing current accounts using debit cards as the lead product in the portfolio of services that it has to offer. There are many reasons behind this including the increasing functionality offered by new technology and channels (i.e. contactless), the increasing popularity of debit in traditional credit markets (i.e. UK) and the increasing usage of loyalty on debit.
Banks are making it easier for customers to change accounts, removing some of the traditional barriers to exit. This is having the effect of introducing the concept of |
“churn” to the current account market, which had been traditionally the preserve of the credit card market.
Banks are also using debit cards as a means for cost reduction by replacing more costly forms of bank interaction. We can see this across Europe with many banks (and card schemes) adopting proactive strategies to move non electronic forms of payment to card, then move from ATM to POS and finally target the more profitable transactions within POS.
Insight has experience of working with banks to help them understand the role of the debit card in their organisation and to increase its contribution. After an initial Debit Card Profitability Healthcheck, we can help build a true debit card P&L and provide a Debit Card Financial Model that will help simulate the effects of change on the debit card product.”
Our consultancy team works with debit card issuers to identify debit card strategic aims, governance structures, forecasting and reporting requirements to more effectively manage their debit card programmes. We follow this with detailed costs and revenue analyses in order to reverse engineer a product level debit card P&L. The result is a management process and financial modelling tool which enables issuers to more accurately forecast debit card revenues and costs and to flex these to perform sensitivity analyses, “What if?” scenarios and make informed decisions about investment in the product.
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