Further thoughts on the introduction this week of CapitalOne’s decoupled debit product (see my earlier entry here). I’d like to do a quick overview of what this means to different constituents and see where that takes us.

So let’s look at what this means to different participants in the payments value chain…complete with my own little positive/negative ratings system:

1. Merchants: (+) Overall it’s a positive. SOMEONE in the debit issuance arena is addressing their concerns and providing a product that enhances loyalty, repeat transactions, etc. They have not been able to get anywhere with “merchant funded rewards” (third party programs that reward debit card customers for PIN-based transactions). Issuers are having none of that. It will be quite interesting to see the benefits to merchants who don’t co-brand with CapOne, potentially in the form of lower overall interchange for debit transactions (still TBD?) as obviously the co-branding partners will be limited.

2. Issuing Banks not named CapOne: (—) Definitely a big double negative. This is hitting them squarely with a threat to interchange revenue and also a “decoupling” of the entrenched relationship with their account holders that the debit card brought them. Consumers who want to earn merchant rewards can now do so without switching banks, and those consumers with affinity for debit cards now can use them without earning interchange for their particular bank. De-coupling hurts…

3. Payment Networks: (-) A bit of a negative for Visa and MasterCard. They can’t be too excited about it (especially Visa). These will still be transactions that essentially travel through the debit network, and that’s ok. But what’s bad for Visa/MC issuers is bad for Visa/MC. This could also affect the competitive balance with the other networks—both Amex and Discover as well as the EFTs.

4. Alternative payments, specifically merchant networks, even more specifically, Tempo: (—) Big negative for Tempo. I’m seeing this product as a Tempo Payments product that is accepted anywhere MC is accepted. Not good for Tempo. Not good at all. Yes, it definitely “proves the model,” but it’s also better proof of the model with millions of built in acceptance locations.

I’m thinking about an in depth consumer value proposition for tomorrow. Later this week I want to get to the mechanics and features of the product…so stay tuned!