Capital One’s Business Case for Accepting Debit Cards
“Accepting debit cards was absolutely the right decision,” said Brandee Bevan, Director, Payment Services at Capital One.
Capital One presented a convincing case for why 10 months ago they began accepting debit cards for customers paying their credit card bill. Their presentation at PAYMENTS 2014 was hands down one of the most insightful of the show. Here are the highlights:
Customers Want to Pay Loans with Debit Cards
Customer demands lead Capital One to explore adding debit cards as a payment option; they reported 1 in 8 pay-by-phone customers inquired about paying with a debit card. Telling customers they could not use a debit card created a poor customer experience.
The bank identified three customer segments that had high demands for debit card payment processing:
- Unbanked - subprime credit card customers who did not have a checking account, but did have a prepaid debit card to pay their bill.
- Collections - customers who had previously been through the collections process with the bank, where Capital One did accept debit cards, now wanted to pay their bill on time using a debit card.
- No Checks - customers without access to their checkbook trying to make their first payment. Often customers would be at work calling to pay and did not have their checkbook.
Business Case Built On Three Big Benefits
Capital One built a rock solid business case for accepting debit cards for loan payment processing based on:
Helping customers in need
Reducing risk and lower open to buy holds, thanks to a guaranteed funds model
Likelihood to pay increasing, which aligned with their collections strategy
Costs Are Manageable
While the cost of accepting debit cards prevented Capital One from acceptance in the past, recent changes lowering costs made for a successful business case. Capital One’s strategy to meet customer demands for an affordable cost was to initially limit the channel availability. Now, customers talking to a live agent in the call center who ask to pay with a debit card can. In this way, the bank was able to eliminate customer pain for a manageable cost. While there was discussion of limiting the maximum payment amount or the number of debit card payments a customer made, the bank did not impose these limits.
Success from Accepting Debit Cards
Lower than expected costs, fewer repeat calls and delighted customers resulted from Capital One’s decision to accept debit cards. Capital One first enabled a small number of their call center agents to take debit card payments over the phone and after initial success, enabled the capability for all call center agents.
Costs have come in lower than anticipated due to:
- Customer paying with a debit card are paying a smaller amount than the average payment size
- Fewer repeat calls, in the past customers were forced to pay with ACH and if they did not have their ACH info, they were forced to call back when they found it
- Return rate for payments made over the phone decreased by 31%
The Best Phone Call I Have Ever Had
“By far the best phone call I have ever had with Capital One”, is how one customer described paying with their debit card. The bank now delights customers by making their payment processing experience even more efficient and convenient.
Capital One proved the business case for accepting debit cards for customers paying their loans. They built a rock solid case around satisfying customers, reducing risk, lowering open to buy holds, and increasing customer likelihood to pay.
Looking to the future, “Debit cards are fastest growing payment instrument for bill pay,” asserted Ryan Cope from McKinsey & Company’s wholly owned subsidiary, GCinsights, during their PAYMENTS 2014 co-presentation with Capital One. Costs have fallen, consumer demand is growing and the business case is proven. Now’s the time to explore accepting debit cards.
Take the next step. Bust the common myths of accepting debit cards with this infographic!
Related Blog Posts
From API to AI to I: Banking Tech Gets Personal
Tired feet. Running out of business cards. Countless LinkedIn connections – sound familiar? This time of the year is conference season; the annual SIBOS (SWIFT) and Money20/20 USA gatherings spanning the autumn give attendees plenty of hot topics and talking points. My American colleagues refer to this season as “the fall.” I trust this to be an observation on leaves and fruit rather than a sequitur on the state of the fintech industry. Either way, it’s a good time to harvest, to take stock and to work out what we should be doing with the apparent abundance of innovative produce.
How to Maximize the Value of Partnerships Between Fintechs and FIs
The LATAM Open Banking & Fintech Partnership, organized by Connect Global Group, was held earlier this year in Mexico City, and ACI participated as one of the forum partners driving discussions on how to maximize value from collaborative partnerships between FIs and Fintechs. We explored the invaluable benefits of open API and strategies to differentiate the offerings of FIs and Fintechs, address consumer demands, and best practices for implementation aligned to regulatory requirements.
A Deep Dive into the Payment Tendencies in the Mexican Market (Part 2)
While the sheer volume and age of potential shoppers makes México an attractive market, there is another component to the viability of eCommerce: México is mobile. A recent study performed by the Asociación de Internet.mx, shows that México is one of 22 countries leading the trend toward mobile commerce, with young adults making 88 percent of smartphone purchases. The country has one of the largest mobile markets in Latin America, with one-third of all residents using smartphones.
A Deep Dive into the Payment Tendencies in the Mexican Market (Part 1)
The population of México is the second largest in Latin America, with 122 million residents, 39 percent of whom are considered middle-class. The population is relatively young, with an average age of just 27, and one-third estimated to be millennials, which is often a factor in driving the popularity of eCommerce. Last year, 56 million people accessed the internet in México, though despite the high number of internet and mobile phone users in the country, nearly two-thirds of the population do not have bank accounts (source: Banco de Mexico).
How to be a Payments Trailblazer – The Seven Habits of Highly Innovative Organizations
The new Culture of Innovation Index from Ovum and ACI identified segments—from banks to intermediaries to merchants to corporates—at the cutting edge (of innovation) across the payments ecosystem. But what is most notable about those segments that have reached ‘trailblazing’ status is the apparent lack of commonality between them. No one segment, nor one region fosters better innovation. In fact, what’s driving these segments/organizations to be best of breed is their own culture of excellence. The only thing they have in common is their attitude.
Customer Innovation: Erste Bank [Q&A]
The global banking sector is becoming both more strategically focused and technologically advanced, responding to rising consumer expectations while trying to defend market share against an increasing array of competitors. A great deal of emphasis is being placed on digitizing core business processes, and reassessing organizational structures and internal talent to be better prepared for the future of banking.
Regulating for Real-Time: The Role of Government in Payments Modernization
Dr. Leo Lipis and Craig Ramsey, Head of Real-Time Payments for ACI Worldwide, continue their discussion on real-time payments and the findings of the new white paper, Get More from Real-Time.
Issuing and Acquiring in a Real-Time and Open Payments Ecosystem – The Global Picture
Dr Leo Lipis and Craig Ramsey, Head of Real-Time Payments for ACI Worldwide, continue their discussion on real-time payments, stemming from the findings of the new white paper, Get More from Real-Time. See part one.
Four Questions to Drive Your Retail Banking Payments Strategy in 2019
I keep hearing that it’s “an exciting time to be in payments,” and I certainly agree that there is a lot of noise. However, when I look below the surface, I’d argue that the interesting activity is not with the payment itself, but with all the related events and steps in the value chain.
What Can the Re-Regulation of Other Industries Tell Us About Open Banking One Year On?
UK Open Banking just reached its first birthday milestone (on January 13 to be precise) and given my own commentary – including in the ACI blog – on this topic, the first anniversary of Open Banking in the UK certainly won’t pass without a debrief on the progress that’s been made and what challenges lie ahead.