The Green Sheet Online Edition
December 26, 2007 • Issue 07:12:02
NACHA clarifies ACH rules
The field of debit cards is tight, and some banks are feeling a pinch from the surfacing of decoupled debit cards. But just how far are these banks willing to go to keep a hold on stakes they originally claimed? In November 2007, NACHA - The Electronic Payments Association issued a clarification of a rule regarding transaction aggregation after receiving a request to do so.
Some experts say banks sought the clarification because they are targeting Capital One Financial Corp.'s new decoupled debit card in the hopes the card will be pulled from the shelves.
NACHA stated transactions requiring settlement to payees within 14 days may not be bundled. This will affect transactions linked to POS debit cards that are PIN-protected but rely on the automated clearing house (ACH) for settlement.
Capital One's new MasterCard Worldwide-branded debit card, introduced in June 2007, allows merchants to issue co-branded debit cards linked to consumers' existing demand deposit accounts.
Consumers do not need to change their existing bank relationship. Instead, funds are pulled from the consumers' account via ACH. (For more information, see "Changes afoot for signature debit," by Ken Musante, The Green Sheet, Nov. 12, 2007, 07:11:01)
The card is often referred to as decoupled because it separates the relationship between the issuer and the demand-deposit account backing the card. The NACHA rule description raises costs for Capital One, as it is forced to reprogram systems that were designed for aggregation. Instead, the company will have to pay ACH origination fees on each transaction instead of on bundles of payments.
There might be a silver lining in NACHA's rule. Ken Musante, President of Humboldt Merchant Services, thinks it would be in Capital One's best interest to not bundle payments. "Not only would [bundling payments] create cardholder confusion, but it would be frustrating for cardholders to initiate disputes," Mustante said.
"Were [Capital One] to launch this product with bundled debit transactions, it would leave them vulnerable to attacks from the traditional issuers that do provide a description with each transaction. I would expect most cardholders would prefer the existing structure to a higher reward offering (even if the debit and credit rewards were combined)." Musante acknowledged Capital One's expenses will increase, but the product will only find success if two instances occur:
- The card Associations provide a true reward interchange for debit.
- Capital One uses the decoupled card as a gateway product that allows it to capture deposits.
"They could do this in a myriad of ways, such as partnering with a National ATM network or providing one-time rewards for establishing a DDA [demand deposit account] with Capital One," Musante said. "This would dovetail well with their existing credit card offering by providing low cost deposits and leveraging the customer base."
No one knows for sure whether banks played a role in this. But one thing is for certain: Banks are starting to feel the heat. "Banks are threatened because there is a land grab for deposit relationships," Musante said. "Managing the DDA makes that financial institution likely to also house that customer's savings accounts. Banks are being disintermediated by credit unions, insurance companies, brokerage houses and online financial institutions.
"Banks have maintained the primary deposit relationship, in part, by maintaining the check card/debit card relationship. If this product becomes distributed in the same fashion as the credit card, banks could lose their grip on their customer base and with it, their deposit base."
NACHA officials have denied the rule clarification is aimed directly at Capital One. The ruling, officials stated, will affect several businesses.
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