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Capital One’s Business Case for Accepting Debit Cards

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.

Capital One presentation at PAYMENTS 2014

Click to enlarge image

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:

  1. Helping customers in need

  2. Reducing risk and lower open to buy holds, thanks to a guaranteed funds model

  3. 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!