June 4, 2007 | written by Bruce Cundiff
CapOne Turns “Acquisition” on its Head (Part I)
Rarely do I see an issue or a product development in the payments arena that requires my ongoing attention and blogging. But darned if I will not be focusing on various thoughts and ruminations over CapOne’s “Decoupled Debit” product (can’t find a link directly to the product page, but I’ll keep looking) throughout the week. Yes…it’s that huge.
This is a MasterCard branded card that is co-branded with merchants. The twist is that all transactions are fed through the ACH from cardholders’ existing bank accounts. Believe me, we had a lot of fun earlier today mapping out how this works and who the players are and where they fit in in the relationship and the transaction itself.
So my initial thought (and the reason for the title of the blog) is that CapOne has created something that completely negates the need for a new (DDA) account opening for the “debit card” issuer to acquire the customer. A good portion of the inertia (thanks Jean) associated with capturing the DDA relationship is now rendered unnecessary. This inertia—the low probability of customers migrating banks for a particular product—has been viewed both positively (existing customers are less likely to leave) and negatively (more difficult and costly to acquire new DDA customers).
This is not to say that there are no longer benefits to having a DDA relationship with the customer. In fact I would think obtaining this is a prime portion of the overall CapOne strategy. However, that lifetime value of the DDA customer is inherently changed by this decoupling product. I need some time to chew on this…
Do you think that CapOne’s ROI is based primarily on interchange? I can’t see where else they get significant revenues to justify doing this, but I am probably missing something.
Thanks for the comment and question, Aneace. (I don’t think you miss much!!) I think that interchange is a key part of the strategy, but it’s definitely deeper than that. It’s certainly competitive in nature—the ability to garner debit cardholders (and of course, in turn, transactions and interchange revenue), but also make the case to merchants in providing value to them in the context of the debit card product (a subject that is near and dear to your heart!).
With this product innovation, CapOne can do this without the friction of establishing the DDA relationship. They’re not forcing consumers to effectively switch banks. The need to do that has been a hindrance for debit card program development, and is mitigated with this product. I’m interested in your further thoughts, as always!!
So, this is effectively a “pay by check” mechanism that uses the reward-card form factor to get consumers to use it?
I am interested in better understanding the work flow of this product. One area that is especially hazy to me is the authorization process. How are these transactions being authorized to ensure funds are available before the transaction is settled through ACH? Is MasterCard doing this? Is CapOne using another third party product?