Bank foray into hybrid cards proves unfruitful

In the wake of new legislation that slashed the amount payment processors could charge for merchants that accept debit transactions, banks envisioned a new type of card that could handle both credit and debit purchases, but encouraged use of the former. However, this kind of card hasn't caught on as expected.

Banks believed that consumers would welcome such a card, which would allow them to carry fewer physical cards in their wallet, while keeping the same number of accounts handy at all times, according to a report from American Banker. And even after extended pilot testing programs during which the companies offering such a card could tweak them to be more consumer-friendly, it seems that bank customers just aren't buying that these cards offer them any more convenience.

In general, the cards have mainly been plagued by consumer disinterest in adopting them, as well as other, similar options that rely on more readily available technology they may already have, the report said. Only one major national financial institution, Fifth Third Bank, has reported that such an account type has been successful.

Where Fifth Third succeeded
This bank's branded Duo Card was introduced to customers in 2011, and now is issued for about a quarter of all new credit card accounts with the company, the report said. As such, it will continue focusing on the issuing and promotion of this account, particularly to customers who already have checking accounts with the bank. The card allows consumers to choose at checkout whether they want a given transaction to be conducted with debit or credit.

However, unlike other major banks, Fifth Third also won't concede that new debt transaction swipe fee rules — which have significantly eaten into the profit margins for banks with assets of $10 billion or more — was the reason they introduced the Duo card, the report said. Instead, it believes the card benefits consumers who use both credit and debit on a regular basis.

Where other banks failed
But because the new swipe fee rules only apply to major banks, industry giants like Citigroup, which is one of the nation's largest issuers of debit and credit cards, is halting its attempts to launch a similar card, the report said. Its planned 2G card, which works in much the same way as Fifth Third's Duo, will soon end its pilot test, and it seems that the program will not continue into the future.

Of course, experts also note that the reason these cards haven't caught on with consumers is that banks are now finding new ways to make up the revenues lost due to the debit fee limits, the report said. This includes the significant scaling back, or outright elimination, of debit rewards programs. Other banks have also increased fees for checking accounts with associated debit cards, and have begun marketing their credit cards more aggressively. Many banks have also turned their attentions to developing mobile wallet programs that do the same thing as these dual-account cards but on a smartphone, essentially skipping a step of the technological ladder.

Another possible cause?
It's also possible that banks, still reeling from many of the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, are hesitant to tread too heavily into regulatory grey areas, the report said. While there's no indication that regulators are looking into these cards, many banks may simply believe that at this point, with so much about the financial industry still undecided, discretion might be the better part of valor.

As a consequence, some might see waiting through a few more years of dampened revenues instead of drawing more ire from Washington as the wiser path, the report said. Already, consumer advocates have targeted this type of card as being potentially problematic if they lead borrowers to take on debts they can't afford.

In general, larger debts that borrowers cannot afford lead them to miss payments and even fall into delinquency and default on their outstanding debts. These two types of missteps, though, can have significant impacts not only on a borrower's overall finances, but also on his or her credit standing. Together, they account for a total of 65 percent of a borrower's total credit score.

Of course, other considerations may also lower a borrower's credit rating, and that can include unfair markings on their credit reports. As such, consumers should take the time to regularly check these documents for any entries of this kind, which may be taking an undue toll on their standings. If any are discovered, it can be a good idea to work with a credit repair law firm, which may help clear up the issue and return them to where they should be.