April 3, 2018
Jennifer Gardner, FIS | Senior Vice President, Credit/Debit/Fraud
Retail financial institutions (FIs) of all sizes are faced with a saturated debit market in the U.S. Therefore, to grow account numbers, only two broad strategies emerge: launch a charm offensive to encourage first-timer millennials and the underbanked to join your bank/credit union or steal market share by enticing those already banking with the competition.
While a debit account may not be the most profitable banking product, it is traditionally the gateway-service to a deeper customer relationship and can result in numerous upsells into credit cards, loans, mortgages, investments and more. Successfully attracting new customers depends on differentiation. In a climate of fast-evolving technology, an increasing number of affordable strategies are available that offer the improved service levels that will entice new business. Once onboard, satisfied debit customers are a rich source of additional sales, building on an atmosphere of mutually beneficial benevolent entanglement.
The debit card has always been, and continues to be, the first relationship with customers. However, according to Mercator, checking account ownership in the U.S. is already about 90 percent and these accounts are converted to full debit card accounts for about 80 percent of the cases. Meanwhile, cash remains a persistent barrier in driving toward ubiquitous electronic payments, with many demographics still opting for paper and coins for many occasions. FIs are faced with differentiating themselves in an environment where debit cards already service most people, while also encouraging those cash-heavy customers to opt for more electronic payments, even low-dollar amounts.
The first step is to promote an atmosphere of security and evangelize the added-value of electronic payments to those that opt for the cash option. Fraud and theft are problems that regularly hit the headlines and foster a sense of concern in the public. The risks of losing a credit card are alleviated by the fact that any misappropriated funds taken from the card are routinely reimbursed to the card owner instantly and with no customer liability. However, this is not always the case with debit cards, but there is no reason debit card accounts cannot also receive the same benefits with issuers reimbursing customers for any funds taken fraudulently – offering the same risk-free service as credit cards.
Many institutions are turning to more affordable, rules-based artificial intelligence (AI) and data analysis to improve fraud detection by flagging suspect transactions early. Issuers are not the only party with a responsibility to reduce fraud risks; cardholders can be encouraged to take steps to ease the detection of potentially fraudulent transactions as well. A well designed online/mobile interface can allow cardholders to set controls and alert triggers on the card to flag suspicious transactions based on predefined limits. By instantly messaging a customer on a suspect transaction, a multilayered fraud detection regime fosters a more intimate and valuable relationship with the customer.
Most customers are unaware that losses to fraud on debit cards can be covered quickly and that a normal debit service can be resumed almost instantly with no loss of funds or service level. Also, while the inherent insecurity of cash may seem self-evident, there is still work to be done to encourage people to keep cash purchases to an absolute minimum; once cash is lost or stolen it is gone, whereas debit card accounts do not suffer this risk.
Instant gratification and a frictionless experience are the expected levels of service demanded by the modern client. Almost half of all consumers now report preferring using only digital channels for their banking needs, and this rises to over 80 percent with millennials. Therefore, providing a strong mobile and online account management service to customers is a critical first step toward enticing customers who have traditionally banked elsewhere. The good news is that digital customers are of much lower cost to institutions – a typical branch transaction costs four dollars whereas a digital transaction costs between 10 and 20 cents.
However, many FIs fail at the first jump – account opening has historically been a laborious process of identity validation and credit checking that can take days before a card can be issued. Today, instant issuance is possible with all interactions done online or through a bank’s smartphone app or website. The use of digital IDs will accelerate these moves, but in lieu of its widespread use, accounts can still be opened by customers sending an instant photo and a scan of relevant identifying documents. The debit account can be opened and the account number transferred to the customer and immediately loaded to the top of their digital wallet for instant use. The plastic card can then be sent via mail or picked up at a convenient time – this also applies for when a card is lost or stolen.
With the ongoing drive toward truly frictionless transactions, more payments will be made via digital wallets, thus virtually eliminating the need to swipe a card with a PIN.
Enticing a customer to switch their current bank card in favor of another demands incentives; a completely frictionless account opening process makes it easy and a fully digital service is attractive, but these may not be enough. The biggest driver for the consumer would be an impact to their bottom line, such as a generous rewards and loyalty scheme. Repeatedly, consumers report that a bank offering more attractive reward points is a strong motivator for switching their debit card provider. In the past, consumers would have to choose the bank card from their physical wallet at the point-of-sale (POS). Nowadays, the default card is embedded into a smartphone’s digital wallet and unless the consumer makes a change, once a bank’s card is established to top-of-digital-wallet status, the user is unlikely to change it.
Once a customer is a happy new debit card holder, with an open channel for communication, the bank can move forward with upgrading the relationship through well-targeted offers for additional products. With the receipt of wide-ranging transactional data now available, the bank can make more life-cycle oriented offers such as mortgages, loans, college fees and retirement planning services.
Simply winning new customers to debit cards is not the endgame. Financial institutions need customers to develop closer relationships that last a lifetime. This requires that banks maintain a strategic plan for customers to graduate from debit to credit to loans to investments, etc. As we drive toward more frictionless payments, and the payment itself becomes more invisible, consumers will increasingly use a mobile device to pay. Messages and rewards need to encourage the debit account to remain top-of-wallet for even the low-value dollar payments that too often default to cash.
Banks need to differentiate to accumulate.
FIS | Senior Vice President, Credit/Debit/Fraud
Jennifer is the Product division lead over Credit, Debit and Fraud products. With over 25 years of experience in the financial services industry, she has held previous roles in accounting, finance, marketing and product management. She relishes in the energy provided by creatively approaching problem solving for clients and consumers and removing complexity to achieve speed to market.