Fifth Third’s Credit/Debit Card: A Response to Customers, But Also Suited to Durbin

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Fifth Third Bank on Wednesday introduced a combined credit and PIN-debit product called the Duo Card that the Cincinnati-based institution says is the first of its kind in the U.S. The bank says it produced the card in response to customer demand for one card that could be used for both credit and debit purchases, but its business model seems to be suited for the new, more regulated economics of payment cards.

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When a customer uses the MasterCard-branded card at the point of sale, she simply signs to use the credit feature or enters her PIN for a debit sale. The card has no signature debit functionality but is usable at ATMs.

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Unlike many national credit card issuers that court customers outside of their branch footprints, most of Fifth Third’s credit card holders also have checking accounts at the bank. Many cardholders have expressed preferences for one card that could access both their credit and checking accounts, Jon Groch, senior vice president and director of Bankcard Services, tells Digital Transactions News. He explains that they wanted debit card access to help control their spending and access to credit for the perceived better protections in case of fraud, he explains.

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“This kept coming up in our research—‘Hey if you could combine these two things in one piece of plastic,’” says Groch.

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Fifth Third plans to market the card primarily through its branches, not through mass mailings or big advertising campaigns. “It’s going to be really branch-based type of selling,” Groch says. The bank has $1.8 billion in credit card receivables but does not disclose its credit or debit card numbers.

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While the bank says customer input was the main force behind the Duo Card, it comes along at a time when new government regulations are changing the economics of payment cards. The CARD Act in 2009 put some crimps on credit card issuers’ pricing flexibility, and the Federal Reserve Board’s new rule to implement the Durbin Amendment in 2010’s Dodd-Frank Act will cut debit card interchange for large issuers by about 45% and give merchants more choice over debit transaction routing.

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The Fed’s interchange controls make no distinction between signature and PIN debit. At first glance, that factor would seem to bolster the case for PIN debit for purchases. Signature formerly generated more interchange than PIN debit, but its loss rate was much higher. But if interchange rates are equal, the economics of PIN debit improve because of the authentication form’s lower losses.

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Plus, if the Duo Card’s credit option picks up signature transactions that cardholders formerly would have put on a conventional debit card, Fifth Third could make some extra profit because credit cards generate higher interchange than signature debit. (That would only happen, of course, if credit card chargeoffs don’t negate the added interchange revenue.) “Conceptually I think it’s a great idea,” says Dennis C. Moroney, research director at Needham, Mass.-based TowerGroup. “The banks are trying to figure out how to recover from all this stuff.”

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Moroney adds that a combination credit/PIN-debit card is well suited for adaptation to mobile payments and EMV chip cards. Visa Inc. this month announced plans to bring EMV payments to the U.S.

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Meanwhile, a spokesperson for Total System Services Inc. (TSYS) says two client financial institutions are testing the TSYS Hybrid credit card product the Columbus, Ga.-based processor announced in February 2010. The product enables an issuer to link up to five demand-deposit accounts to one credit card. The accounts can come from one or multiple financial institutions. Consumers go online to establish their “pay now” or “pay later” preferences. The spokesperson wouldn’t identify the clients, but says one is in late-stage beta testing and the other is in the early stages.