I don’t use debit, but…

[Dave Birch] I’ve no idea why anyone uses a debit card, decoupled or otherwise, for anything, but I hear they’re very popular. That’s one of the reasons why I found Capital One’s decoupled debit experiment so interesting. In fact, I went on the record as saying that I thought it was the most interesting new product last year. But now Capital One have terminated the experiment after only a few months. So was I wrong to focus on the product? Well, I don’t think so. For one thing, while Capital One won’t say why they are stopping, it’s not because of the people who count: merchants. According to American Banker, Rich Steckroth, who is Director of Business Development for Sheetz, said clearly “We like the program”.

So who didn’t? One of the analysts quoted says, rather plausibly, that it’s more to do with Capital One not having the money necessary to really launch the project than a verdict on the concept itself, and I agree. Other people think that they will simply offer the facility to their own credit cards holders (as some other issuers are going to do, I’m sure). Customer and merchant proposition apart, though, you may also recall something else lurking in the background. If I were a competitor, particularly a smaller bank sensitive to the loss of interchange revenue, I might be very tempted to take the traditional banking approach to competition in the payment sector and ask the relevant regulators for clarification about the new entrant. As it happens, just such a clarification took place earlier in the year…

There was an excellent post by Carol Coye Benson over at Payments News the other day. She highlights the new rules interpretation around decoupled debit in the US. The three key points are:

First, the transactions must be classified as “POS” transactions, rather than using other ACH transaction codes.

Second, the transactions cannot represent an aggregation of underlying consumer purchases – e.g. three separate purchases at one (or more) merchants on a given day cannot be combined into a single ACH debit transaction.

Third, the “payee” in the ACH transaction, which is carried through to the consumer’s bank (and therefore appears on the consumer’s statement or online transaction listing) must be the underlying merchant, and not the card issuer: in other words, “Capital One” could not be the payee shown on the consumer’s statement.

[From Digital Money Forum: Decoupling the small print]

There’s no doubt that the ban on aggregation increased costs for Capital One, but who knows whether they increased them enough to make the program uneconomic. I’m sure that wasn’t the goal of the clarification anyway, which was wholly to do with safety and soundness of the U.S. banking system and nothing to do with raising barriers to new entrants. I’m sure we haven’t heard the last of the decoupling concept. I can certainly imagine decoupled debit operating through any secure token to provide maximum customer convenience. Why shouldn’t I pay with my Tesco Clubcard, digital certificate on my PC, fingerprint, employee badge or (rather obviously) mobile phone — as they do in Germany — and have the transaction routed via ACH?

There’s a more general point here that’s worth exploring. Cards date from an era when the idea that every bank would have a network connected to every retailer was unthinkable. But now, every bank is connected to every retailer (and, for that matter, every customer). As I’ve often remarked, the great majority of payment problems are actually identity problems. If you have a secure token that takes care of the identity problem, then wouldn’t every payment transaction be routed directly to some kind of transaction account maintained by a secure and trusted service provider (like a bank, for example) and a whole lot of complexity — not to mention interchange — removed from the payment process?

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