Changing the Game in Cards

2010 is a time of extraordinary change and upheaval in the cards and payments industry. Financial regulation threatens to derail decades of growth and profitability. The U.S. stands as the last industrialized country to rely on magnetic stripe cards, and this exposes us to unprecedented levels of payment fraud. The industry is deadlocked on new technology adoption, including chip and mobile.

Financial Reform Poses a Significant Complication


The passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 governing debit card interchange rules looms large, rife with uncertainty on how the regulations will be defined.

Banks scrambling to replace lost fee revenue will likely shift focus to credit and prepaid, impose DDA and other fees, along with new account services and comprehensive pricing packages.

Consumers: Australia’s example illustrates the consequences of interchange fees capping, in which consumer benefits failed to materialize.

Merchants benefit from lower acceptance costs for debit cards. In a surprising twist, incentives and steering could have the perverse result of driving consumers toward cash and checks.

How Can Banks Respond? Change the Game


Create a Tipping Point for NFC: The wave of the future, but the industry has been deadlocked for years. Banks and mobile network operators (MNOs) drag their feet hashing out business models and revenue arrangements. MNOs are reticent to acquire NFC handsets, and merchants reluctantly upgrade POS to accept contactless. Handset manufacturers have devices with NFC, but nobody buys them.

Over-worrying revenue sharing arrangements stifles innovation. Instead, imagining how to “expand the pie” energizes innovation. Examples, e.g. explosion of SMS messaging and online music sales, illustrate that a single visionary company can change the industry. Several players with millions of loyal followers have that opportunity, including Facebook, Apple, and PayPal, each of whom could trigger a viral effect. The bank that partners with the right game-changer will enjoy first-mover advantage and new revenue streams.

Launch Chip & PIN: The financial reform bill provides incentive for banks to invest in fraud prevention. For decades, the U.S. has looked the other way as the rest of the world deployed EMV technology to fight fraud. Changes in fraud, cost, revenue and new technology make today the right time for the U.S. to reconsider:


  1. The U.S. becomes the weakest link and a target for massive card fraud

  3. New POS terminals have EMV capability built in at no additional cost, the cost of chip cards has declined such that incremental cost compared to a mag stripe card is less than $1

  5. U.S. payment card issuers missed out on nearly $79 million in interchange in 2008, because of problems U.S. cardholders had while traveling abroad

  7. Chip readers position the industry for other forms of payment, notably mobile NFC proximity payments


Implementing EMV would be lauded as a giant leap in the right direction. Banks would enjoy lowered fraud losses and earn adjustments to interchange as set by the Fed.

Banks today have an unprecedented opportunity to remake the card and payments industry and build toward a future in which payments are more secure and convenient, with promising opportunities in new businesses not even contemplated today.

Deborah can be reached at


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