Issuers Must Change How They Market Debit Cards, Study Says

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Although debit cards allow customers to wield plastic instead of cash and help banks cut their check-processing costs, growth of the product may be suffering because of poor marketing communications, according to a recent study by market research firm BAIGlobal Inc.

A series of focus groups found consumers were confused when issuers converted from private-label ATM cards that typically can be used only at banks to branded debit cards with the Visa and MasterCard logo that can be used at banks as well as retail stores. Two-thirds of newly mailed debit cards carried one of the logos, the study revealed.

"Visa and MasterCard are powerful brands in the marketplace and are nearly synonymous with credit cards," said Claire Peerson Braverman, senior vice president at BAIGlobal, Tarrytown, NY. "Cardholders have an adjustment to make when they see these brands now on debit cards. In some cases, we found cardholders who thought they had a hybrid credit/debit card. Issuers have to be especially careful to explain the distinction."

Braverman said banks need to give debit cards a different look than credit cards and to use the word "debit" in describing them.

"For a long time, nobody wanted to use the word 'debit,' because it sounded so much like 'debt,' " she said. "Banks can help [customers distinguish between credit and debit cards] by making it very clear in their communication to customers."

Another major roadblock is that cardholders are having significant difficulty tracking their money. Inbound telephone call volume to issuers' call centers could soar if the problem isn't solved.

"The expansion of debit card use from cash access to direct merchandise purchase has disrupted cardholders' usual methods of record keeping and control," Braverman said. "Their checkbook register just doesn't do the job anymore. People literally don't know how much money they have."

She suggests making account balances available to consumers online or providing them with a small electronic device that monitors the accounts.

"The answer may not be in one item," Braverman said. "We saw in the focus groups that households had different needs -- depending on how many people they had dipping into their accounts, who in the household was in charge of the account and their attitudes toward the account."

Despite problems within the debit-card marketplace, opportunity for industry growth exists. While debit cards penetrated nearly two of three households, cards linked to only one-third of all the household's financial accounts, meaning debit cards have the potential to be linked to other accounts.

"Most consumers have multiple financial relationships -- 2.7 relationships on average," Braverman said. "If consumers take on one debit card for each relationship, the share of wallet devoted to debit cards can increase greatly."

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