Bank Debit Growth Slows As Alternatives Take Greater Share

It would be hard to over value the impact on the growth of debit use on bank checking revenues between 2000 and 2010.  Debit moved from 10% of non-cash transactions during the period to 40%.  This drove not only interchange revenue growth, but NSF usage, foreign ATM fees and other debit related revenue.  By 2008, checking revenues were the highest in banking's history.

But the world is changing and checking revenues are down 20% from past levels.  As the 2013 Payments Study by the Federal Reserve shows, a key reason is debit transaction growth is slowing and falling check volume has reduced the NSF rate on checks.  ACH and prepaid are now equal to 25% of all non cash payments and prepaid is growing at twice the rate of debit cards.  These alternatives are stealing both interchange and liquidity revenues with "up steam" alternatives well prior to bank settlement.  

ACH settlements, driven by online biller payments and the rapid growth of new providers like PayPal, which now also offers settlement in-store, are increasingly stealing transactions and lowering the revenue bank accounts can earn.  Prepaid cards, whether for general consumer use like Walmart’s Bluebird card or retail cards like the Starbucks card, take balances and fees out of the checking accounts. The revenues on transactions for bank checking accounts are losing are not just interchange, but the related NSF and ATM fees.

This is happening because consumers are choosing new ways to pay over current debit card offerings that they find easier, safer, and put them more in control.  Specifically, 70% they are concerned about overdraft fees when they pay, and want transactions declined rather than paid when insufficient funds exist.  Consumers use alternatives for liquidity today, such as PayPal’s BillMeLater, Float Money, Lending Club, retailer payments, and biller late fees that in many cases are not credit score dependent. (Even Amazon now offers credit without a credit score.)

Yet bank checking account payment options do not leverage and market these features like PayPal and prepaid alternatives other than new players like Bank Simple and GoBank.  The keys for checking account success now are to offer options for:  1) certainty of no overdraft fees ever,   2) easier access to more forms of liquidity, and 3) greater security and simplicity for online and in-store payment.

Rather than watch transactions and revenue slip away in the coming years, savvy banks are providing "payments" approaches to checking services, such as PaySound^® No Overdraft Fees Ever checking and a Companion Card.  The strategies cannibalize none of your existing revenue, and grow your transactions and revenues 30% with the new features desired in the new payments ecosystem.