Can You Say 'Debit'?


Banks are digging into their goody bags again to lure customers. But instead of toasters for new savings accounts, they're offering phone cards, movie tickets and discounts at retailers for those who use their latest product: debit cards.

The small-time giveaways are part of an emerging marketing drive by Bank of America, Home Savings of America and others that have staked a lot on debit cards--the new-styled plastic that looks like a credit card but works like a check. Over the last few years, they have showered the nation with more than 50 million debit cards with Visa and MasterCard logos on them, generally sending them as replacements for ATM cards.

Although that has fueled the growth of debit card purchases, the reality is that most debit cardholders have yet to venture beyond the standard ATM withdrawal. Lingering consumer confusion and worries that card thieves could clean out customer checking accounts have contributed to the limited use of debit cards at restaurants, department stores and the millions of other retail outlets that accept Visa and MasterCard, including debit cards with their logos.

But a Gallup survey released Wednesday found that more than 80% of consumers are now aware of debit cards. And earlier this summer, Visa and MasterCard assured consumers they won't be held responsible for more than $50 in losses on lost or stolen cards.

Financial institutions say they now feel more comfortable to promote debit cards more aggressively in branches. And bank marketing executives think consumers also are now ready for debit cards but need a bit of push. Hence, banks are rewarding first-time users with small gifts such as solar-powered calculators and movie tickets.

"The banks are doing things to get people to use it, believing once they do that they'll be hooked," said Rich Mitchell, managing editor at Card Technology Magazine in Chicago.

Nandita Bakhshi, a senior vice president at Home Savings, the nation's second-largest savings and loan, confirmed that rationale. She said her tests with a cash-rebate program found that 70% of customers who activate their debit cards become regular users. The problem, however, is that the cash rebate program prompted just 12% of the nonusers to even try it.

"We're looking to do a big push for the holiday season," Bakhshi said, adding that she's preparing a new promotion that rewards first-time users a pair of free movie tickets.

Home Savings' goal: an activation rate of 45% in the next two years, up from 30% currently. The bank also wants to see debit cardholders use the card an average of a dozen times a month, almost double the current usage.

But other obstacles remain. Many merchants have frowned on debit cards, feeling the cards--and the processing fees of up to 2% they must pay--were thrust on them by the banks. Visa and MasterCard are trying to woo retailers to promote debit card sales by offering discounts to shoppers.

"You're going to see more of the joint marketing with merchants that accept debit cards," said K. Shelly Porges, a longtime San Francisco consultant specializing in credit card products. That will not only draw support from merchants but also prompt debit cardholders to use their cards more often. "That can be very effective," Porges said.

MasterCard International has already teamed up with retailers such as True Value Hardware and Bed Bath & Beyond, so member banks like Home Savings and Wells Fargo Bank can give discount coupons if their customers use their debit cards for purchases at those stores.

Still, as many banks have learned, the toughest marketing challenge is giving customers a compelling reason to use debit cards, when they already have checks, cash and credit cards.

"There's still a significant number of people who don't see how debit cards could fit into their lifestyle," said Kathleen Yee, debit card product manager for BofA. "That's the biggest hurdle we have to overcome."

In the last two years, San Francisco-based BofA has mailed more than 5.5 million Visa-branded debit cards to its customers, including a Gold version of the card, which carries a higher daily purchase limit.

BofA, the nation's largest issuer of debit cards, recently completed testing two direct-mail promotions developed by Visa USA, whose logo appears on 75% of all debit cards. The first provides a free solar calculator to the first-time user. The second is like a frequent-flier program--the greater the use, the better the rewards, which include a 12-pack of Coke, a Sprint phone card and a $10 gift certificate at Goody/Musicland.

"We were pleased with the results from both mailings," Yee said, although she declined to be more specific. "We're definitely looking at doing more of it."

Banks have a lot of incentive to push debit cards, a big generator of income and which can help them build their relationships with people who are comfortable with electronic banking. For banks, what is really profitable about debit cards are the credit-card style purchases--so-called "offline" transactions--which require just a signature. These debit card purchases are processed like credit card sales but the money is withdrawn directly from a consumer's bank account in one to three days.

By comparison, many retailers in the state, notably gas stations and grocery stores, have long been "online" with banks--linked via regional ATM networks. When using debit cards at these retailers, a consumer has to punch in a personal identification number, and the amount is subtracted immediately from the consumer's checking account.

Banks are not making a distinction between offline and online purchases for their marketing efforts, figuring sales of either kind will eventually lead to greater use of debit cards. Plus, they don't want to risk creating more confusion about the product, for which banks have already received much criticisms because many mass-mailed them with only an insert in small type explaining the product.

Porges, the credit card marketing expert, expects more banks to issue and promote debit cards, especially now that a "critical mass" has been reached.

Wells Fargo Bank, considered a nationwide leader in electronic banking, is among banks that are gearing up for a big debit card splash. The bank has not yet distributed MasterCard-branded debit cards to most of its customers. The only Wells Fargo account holders who have them are some 2 million former customers of First Interstate Bank, which had issued debit cards before it was acquired by Wells early last year.

Although Wells spokespersons declined to comment on the upcoming effort, they said the company was waiting for the industry to allay consumer concerns about customer liability if their cards are lost or stolen.


Debit Card Boom

After a modest beginning, debit card transactions have taken off in the last couple of years, as financial institutions have-mass mailed them to millions of households. Banks hope their marketing blitz will help keep the trend going. A look at tha rising number of cardholders and purchases:

Number of cardholders

In millions:

'97*: 66.7


Dollar Amount of purchases

In billions:

'96: $62.9


Number of transactions

In billions:

'96: 1.2

* First-quarter figure

Sources: Visa USA; MasterCard International; Card Technology Magazine

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