The Discover card brand is moving forward with an effort to reintroduce a signature debit card into a market that is still experiencing a period of turbulence after the adoption of new federal regulations.
Signature debit cards are those where the cardholders validate card purchases with their signatures.
The card brand announced that its first financial institution client–Birmingham, Alabama’s Cadence Bank–had signed on for the card but says several credit unions have also expressed interest in issuing the card. Discover executives declined to identify which ones.
The card brand initially developed the card in 2006, about a year after buying PULSE, an independent ATM and debit network that was owned by both banks and credit unions. But Discover executives said that the new signature debit card did not find the environment suitably welcoming, so they shelved it until now.
Discover executives said the new card’s increased flexibility as well as significantly greater transparency and simplicity when compared to debit card issued with other brands as reasons credit unions might be interested in issuing their card, particularly in the post-Durbin environment.
Regulations flowing from the Durbin amendment capped debit card interchange for the largest issuers and threatened to undermine it for smaller ones, Discover executives Judith McGuire, executive vice president of product management, and Steve Sievert, executive vice president of marketing and communications explained. That opens up the market for a card with the sorts of flexibility and other attributes the Discover card has, they said.
By flexibility, McGuire and Sievert said they meant the lack of rules governing the marketing, processing and pricing of the Discover card when compared to other card brands.
For example, where other card brands insisted that their brand symbols appeared on the front of debit cards, Discover doesn’t mind if a bank or credit union wants to put the Discover brand on the back. Likewise, where other card brands demanded that if a credit union or bank used the signature debit platform for its signature debit cards, it must also use their PIN debit platform for all their debit cards that required a personal identification number. Discover, by contrast, did not require this, the executives said, leaving the bank or credit union more freedom to decide whether or not to join another debit processing network.
“We think the increased flexibility to structure and market a debit card as a financial institution wants is an important aspect that will attract both banks and credit unions,” McGuire said.
She added that Discover’s bill to financial institutions for a month’s debit card program services runs two pages. McGuire said that the bill’s length illustrated both how easily a credit union could understand what it is paying with Discover Debit as well as its affordability.
McGuire explained that the brand claims the card carries a competitive interchange rate when compared with other card brands but also significantly lower charges that, she said, means financial institutions issuing the card earn a higher rate of return on Discover debit cards than other debit products.
Discover believes this simplicity and increased transparency will also help draw credit unions as more of them begin to wrestle with figuring out just what they make from their debit card programs and just how much they are paying. “A number of executives have been very pleased that our users manual and rules can be contained in two medium-sized binders,” McGuire added.
McGuire and Sievert acknowledged that Discover faces a more complex and, in some ways, more competitive debit card market now than in 2006. The regulatory and market changes mandated by the Durbin amendment have made it more difficult to develop a clear marketing plan that will fit most credit unions, the executives said. But they also pointed out that that disruption brought about by Durbin has meant the overturning of long established industry norms and left enough room for a new card product to succeed.
The executives were also careful to make it clear that while the Discover debit card has a rewards and loyalty platform that they said credit unions can tailor to their own needs, it would not include the cash back provisions which helped make Discover credit cards popular among consumers.
