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Debit Profits Under Pressure: Alternative Revenue Models Needed



New Revenue Models Needed to Help Raise Declining Debit Card Profit

Consumers willing to pay for select services on debit cards.

U.S. debit cards are under assault. The Durbin Amendment was the most noted recent event to severely reduce the profitability of Debit cards. Overdraft revenue on demand deposit accounts (DDA accounts) has declined due to regulatory requirements for opt-in to overdraft protection services. Competing alternative payment products such as prepaid cards and walk-on/online bill payments are growing in popularity and consumer usage and taking business from debit cards. Debit cards are growing, but slowly. This new world has created downward pressure on debit cards and growing interest by debit issuers in finding ways to make up for the revenue losses. Optional fee-based services look like they can be contributors, and it is time for retail bankers to take notice.

Mercator Advisory Group’s latest research note, Debit Profits under Pressure: Alternative Revenue Models Needed, explores the current debit card metrics and highlights the decline in debit card revenues due to regulatory and consumer preference and usage changes. To counter this decline, debit card issuers have sought ways to reduce costs and improve efficiencies relating to the DDA account and debit cards. Many issuers are still struggling to find alternative revenue-generating strategies, since raising card fees or account fees have not been very successful. One strategy that makes sense is to incent consumers to increase their usage of the debit card, which will raise interchange income. Another strategy that hasn’t been worked very hard is to develop optional fee-based services that will generate income. Mercator Advisory Group primary market research, fresh from the field, points to U.S. consumers’ interest in certain fee-based services and their willingness to pay for them.

“Issuers of all sizes are experiencing downward pressure on debit profitability. This is a direct result of changes in the regulatory environment, changes in the competitive market, and changes in consumer preferences. To make changes in the profit model, bankers are implementing cost efficiencies and can potentially find new sources of revenue through fee-based services,” comments Ron Mazursky, Director, Debit Advisory Service at Mercator Advisory Group and author of the research note.

This research note has 16 pages and 9 exhibits.

Organizations mentioned in this research note include: Consumer Financial Protection Bureau, PULSE

Members of Mercator Advisory Group’s Debit Advisory Service have access to these reports as well as the upcoming research for the year ahead, presentations, analyst access, and other membership benefits.


Highlights of this research note include:

  • Debit issuers’ reactions to pressure on profitability

  • Changes in debit market revenue dynamics—in the regulatory environment, interchange movement, key performance indicators

  • Categories of revenue

  • New revenue sources: fee-based services categories, types, and cardholder preferences

  • Sizing of new debit revenue

  • Future developments in debit revenue