May 14, 2007

Secret bank talks, debit card competition, and the opportunity to really stand out

Reuters reports that European banks are in secret talks to set up a pan-European debit card to challenge MasterCard’s Maestro, which has emerged as potentially the dominant regional debit card brand. The initiative would of course challenge Visa as well, but Visa’s regional debit scheme, V Pay, does not seem to have gained widespread support.

The European Union’s decision to create a single European payments area (SEPA) is forcing Europe’s national debit brands into extinction. MasterCard and Visa already have viable SEPA-compliant solutions for banks, but it always seemed obvious that the same banks that own the national debit brands would group with their counterparts in other countries to create a regional brand in order to avoid seeing a US based company dominate debit card payments.

All of the existing debit brands offer essentially the exact same payment features. Maestro, V Pay, the current national debit brands and presumably any new pan-European debit brand all offer the same simple, basic, commoditized features. Hopefully this new level of competition in Europe will force at least one of the players to focus on a clear product differentiation strategy.

There is a real opportunity for someone to look at debit cards in a fresh new way. Imagine the strategic impact if one of the brands were to focus on making payment much more attractive to merchants, so merchants prefer that debit brand over others and are willing to pay higher interchange. Wouldn’t that cause banks to want to issue more debit cards with that brand? How could a bank executive justify issuing cards with a lower-interchange brand, even if the brand is European-owned?

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