The Debt Dilemma
Payments: Legislative Update
Welcoming Jo Preuninger
Upcoming Conferences
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Issue #1
This is our inaugural issue of On Payments, an email newsletter we created largely in response to requests from our clients to publish points of view on important issues facing retail banks and members of the payments community. In this first newsletter, we are profiling the debit card industry and the impact of the Wal-Mart et al. vs. Visa/MasterCard settlement.
To sign up for an online subscription to On Payments, please click here.
The Debt Dilemma
4.5 million transactions. That was the number of PIN debit transactions for the entire STAR Network in September 1993. Today, ten years later, that number represents the frequency with which consumers reach for a debit card in Wal-Mart’s 4,750 stores in the United States…every day!
The growth of debit over the last ten years is astounding. Today, debit is an industry representing 285 million cardholders, thousands of financial institutions, approximately five million merchants, and countless vendors providing products and services from cards to consulting.
In 2003, debit cards will be used at the point-of-sale more than 44 million times a day, and will account for purchases of more than $600 billion in goods and services over the course of the year. These transactions will generate fee income for card issuers, switches and processors of more than $7 billion. As an industry, debit in the U.S. outpaces the GDP of Barbados and The Bahamas combined.
When an industry this large and important faces an impact like the settlement of the Visa and MasterCard merchant lawsuit, it pays to pay attention.
Within days of the settlement, many large banks lowered their earnings estimates. Bank of America, the largest debit issuer in the country, originally estimated that it would lose $200 million in income in 2004, or $0.12 per share. Conversely, the damages expert for the plaintiffs estimates that merchants will save $854 million in the last five months of this year, and perhaps $50 billion over the next ten years.
This is a time marker – a point that will be referred to for a very long time as 'before the settlement' and 'after the settlement' happened.
While there’s no question that debit is here to stay, many questions remain unanswered: what is the future of PIN and signature debit? How will interchange rates evolve? Will merchant acceptance levels undergo major change? Which networks represent the best strategic partners for financial institutions?
Ultimately, the most pressing question for financial institutions is: in light of the lawsuit settlement, what should issuers do to address their immediate revenue shortfall?
In the accompanying article, Dove addresses this question, and provides some timely perspectives on different strategies financial institutions could pursue for their debit card programs, and the relative merits associated with each option.
To view the full article, click here.
Payments: Legislative Update
In 2001, Dove Consulting worked with the Federal Reserve to conduct the definitive assessment of the retail electronic payments industry in the U.S., the Electronic Payment Instrument Study. This work sized the electronic payments market (credit, debit and ACH) at 29.5 billion transactions in the year 2000, with an aggregate value of $7.3 trillion. At this time, electronic payments accounted for 41% of the all non-cash payments made in the U.S.
Dove continues to examine the trends and technologies that are driving the electronification of payments. Last week, the Check 21 legislation passed the Senate, and President Bush is expected to sign the Bill; this one act will reshape paper check payments over the coming years across bank back offices, lockboxes, at retailers and at ATMs. Check 21 will streamline check processing, cutting costs and improving efficiency. Additionally, once fully implemented, this change will reduce the role of airplanes to transport paper checks across the country for processing, adding greater dependability to the U.S. payments system.
Welcoming Jo Preuninger
We are pleased to announce the recent addition of Joleen Preuninger to our Financial Services Practice. Jo brings extensive experience in consumer financial services, channel development and management, and profit improvement strategies. Previously, Jo was the Chief Marketing Officer for an online brokerage firm where she led marketing strategy, product development, and sales and service. As a consultant, she worked at Earnings Performance Group to lead retail and payment strategy engagements for clients ranging from community institutions to multi-national holding companies.
Jo can be reached at: jpreuninger@doveconsulting.com or at 617-753-9288.
Upcoming Conferences
Thomson’s ATM & Debit Forum is the premier industry event focused on ATM and debit issues. Tony Hayes, Managing Director of Dove's Financial Services Practice, will be chairing this year’s event, to be held in New Orleans on October 27-28. During the event, CEO David Dove will moderate a panel with three leading investment analysts who will discuss the state of the payments industry. Among the topics to be addressed: major trends driving profitability, how pending industry decisions and issues will affect the payments industry, and which companies are best positioned for success.
As the U.S. payments system relies increasingly on electronic rather than paper payments, industry stakeholders face strategic opportunities and challenges in developing new services and providing an efficient clearing and settlement infrastructure. A new conference organized by the Federal Reserve, The Payments System in Transition, will provide a forum to discuss these important issues. Ed Bachelder and Tony Hayes will be attending this conference in Washington, DC on October 29-30.
Joel Stanton will be speaking on the topic of "Relationship Pricing in an Electronic World" at the upcoming 2003 Payments and Technology Conference, to be held November 3-5 in Scottsdale, AZ. Designed to address the unique challenges facing credit unions in the payments world, this conference will examine recent industry developments and trends—changing consumer preferences, industry regulations, and security concerns—that add to the complexity of making strategic decisions.