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Connecting debit

By Dave Birch posted Apr 14 2008 at 12:49 PM
[Dave Birch] I was interviewed in connection with next week's Digital Money Forum and asked to highlight a significant change in the payments world since last year. I chose to highlight disconnected debit. I'm certainly not the only one who thinks the concept of disconnecting the bank card from the bank account may well cause big changes:

A January 2008 survey by Aite found a sizeable potential market for decoupled debit cards in the United States, with about a third of cardholders expressing interest.

[From Aite Group, LLC Report #200803101]

Debit card use as a whole continues to grow (although it hasn't reached anything like the level that some of us think it should do) and in the U.K. there are already a minority of people who find debit cards more convenient than cash.

According to the survey, 19% of people use cash and cards interchangeably, while 16% say debit cards are the most convenient way to pay. About one in ten say they use plastic to help keep tabs on spending.

[From Finextra: Cash is no longer king - survey]

It seems to me that the addition of contactless interfaces should up this fraction further, but I wonder if there isn't more of a potential for disconnected debit to drive it up further still because of the potential to use other technologies, not merely other cards, to front the debit account?

Given the consumers' obvious preference for debit at retail POS, surely the opportunity is not simply to disconnect the debit card that the bank gave you from your account but to disconnect it from cards completely. Any tolerably secure "token" could then function as the basis of debit transactions: a phone, for example. All you need is a way of connecting the phone to the POS and since POS terminals are sprouting contactless interfaces then contactless would seem to be the way to go. There's no need to invent new kinds of account or payment instruments when most people would be happy to use the functional equivalent of their debit card.

Ah, but... There are a couple of problems with going down this route from the banks' point of view. First of all, it's entirely hypothetical since their just aren't any NFC phones for sale in the shops right now and because of a long delay to deal with standardisation issues and interfaces, there won't be any in the shops soon either. The second problem is that banks aren't used to having someone else -- in the case, the mobile operators -- in between them and the customer. The way to cut this Gordian Knot is, as Garanti already demonstrated, to use stickers. Now, I know that some of you are fed up with hearing me drone on about stickers all the time, but the meme is spreading...

Blaze Mobile has developed a mobile application to allow you to track bank accounts and debit and credit cards from several banks and services. It allows you to make “contactless” payments using near-field communications. If your phone doesn’t have NFC, you can sign up for a pre-paid Mastercard through Blaze that gives you a NFC sticker to make payments. The app costs $4.99 a month.

[From @ CTIA: The Top 10 Coolest Things At CTIA 2008 | mocoNews.net]

I think they may be on to a loser with that $4.99 a month -- since consumers have clearly indicated that while they will happily buy a new phone to get contactless, they won't pay a cent to the bank to use it for payments -- and may be better off negotiating a share in data revenue from the operator, but nevertheless I think this is an interesting development.

Of course, in the UK we will soon all have our own portable, tamper-resistant token with standardised interfaces that I am absolutely certain will be used for disconnected debit as well as other new (ACH-based) payment schemes, and that's the government's splendid new national identity card. If I was a retailer upset about the cost of cards payments, that's what I do.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]


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Great post.

I agree that the advent of disconnected debit is here and will have an impact. I would say another contender in the race is credit card QPS.

[Link to Bankwatch comments on QPS]

At the root is the customer desire for speed and efficient quit small payments. This is in contrast to the costs associated with the transaction applied by the transaction networks and banks.

There is certainly room for some disruption in this mess.

Good luck Dave with this year's forum

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