Which Way for Debit in Europe?

I recently published a report titled “In Search of a Third European Card Scheme: Time to Move On,” in which I claimed that most of the initiatives aimed at establishing an alternative to Visa and MasterCard were unlikely to deliver a viable solution any time soon. I also said that the arguments for having such a scheme in the first place are simply no longer there. Some arguments never really stacked-up to begin with, and others are being destroyed by the emergence of new technologies (e.g. mobile) which provide stiff competition to the card schemes in a different way. The report seemed to strike a chord with many, as it generated a lot of interest from clients, press and others in the industry.

It was interesting to see vindication of these ideas at a conference I attended in Barcelona last week, Cards and Payments 2012, organised by the Axiom Grouppe. I chaired Day 1 and also presented on payments innovation. We also heard from Visa Europe on the progress of its V Pay product and a very interesting case study from Luxembourg, one of the latest examples of a trend of banks in a given European market deciding to shut down their local debit scheme and migrate their debit portfolio to a different product. Banks in Luxembourg did exactly that during 2011 - decided to stop supporting bankomat, their local debit scheme, and migrate to V Pay instead. They said they did a thorough investigation of various available options and found that none of the potential contenders for an alternative scheme could deliver on their requirements.

Conferences such as this are also a great reminder (if one was needed) of the diversity of Europe. For example, V Pay is based entirely on chip and PIN with no magstripe compatibility. In other words, it doesn’t work at non-EMV POS terminals or ATM’s. Personally, I would be mortified if I couldn’t use my debit card to withdraw cash in the US or anywhere else in the world, as I would be charged an arm and a leg by my credit card issuer if I made a cash advance on a credit card. Many Europeans pay annual fees for their credit cards, but get different services, such as cash withdrawal allowances as part of the package. They are quite happy to know that they have a very secure debit card for their day-to-day needs across Europe and rely on credit cards elsewhere.

V Pay has been designed to be a debit product exclusively for Europe right from the outset. However, it’s relatively modest progress (16.6m cards issued, 68.9m cards committed almost 5 years since launch) only serves to higlight the difficult, and often political, decisions banks have to make when determining the future of debit for their market.