In this report, First Data highlights the major trends in European debit, and the growing cost of compliance. We spoke with senior executives in European banks and several leading payment consulting firms to gain insights on the opportunities, challenges and potential for the debit market in Europe and beyond.
In spite of all the changes in the banking industry, the current account has remained central to managing the retail client relationship. While it can be accessed with a range of payment instruments, the debit card has become by far the most common.
Control of the current account has become a major battleground due to its importance as the account into which salary or benefit payments are made. While bank revenues from fee-based products such as life insurance or consumer loans may be very clear, debit card economics until recently have been very opaque. Many banks, however, now need to have a much clearer focus on the cost base of their debit card programs. Ensuring the economic viability of debit card programs is now a major priority for banks everywhere.
Given the fundamental changes taking place, particularly in the European payments market, this is a crucial development. The introduction of the Single Euro Payments Area (SEPA) on 1 January 2008 is leading to much greater transparency in - and questioning of - the real cost of running debit
programs while putting traditional debit business models at risk.
Within Europe, SEPA is opening up new opportunities to both increase revenues and reduce costs through regulatory challenge of existing debit economics and the demand for interoperability of card payments across Europe.
One of the major challenges facing debit card issuers is the growing cost of compliance. This is just one of several trends impacting debit card economics. Others include:
- European banks are reviewing their approach to debit in light of regulatory and commercial changes
- Banks in the Middle East, Asia-Pacific and Latin America are seeing huge increases in debit card issuing and transaction volumes
- Debit issuing is becoming increasingly internationalized, driven by the expansion of multinational banks
- Debit will maintain its key role as the major current account access instrument, but differentiation will become a major market requirement
- Driving economies of scale, reducing compliance costs and increasing cost efficiencies will be critical success factors
- Standardization will become the norm to ensure cross-border interoperability, while product innovation and differentiation will be key to maintaining customer loyalty
- Processing flexibility and the ability to issue cards of more than one payment scheme will be a major advantage for banks looking to build significant market share
- Creative channel management into the current account will become increasingly important, with mobile phones and other delivery channels adding convenience to the service.
We hope that this report will open up debate on the future direction of debit and how to make the most of the opportunities to reduce costs in this critical product area.