2014 Debit Issuer Study reveals increased
usage, a renewed focus on fraud prevention and EMV issuance, and a
resurgence of debit rewards linking merchant offers
The 2014 Debit Issuer Study, commissioned by PULSE, found
sustained growth in both consumer and business debit in 2013.
Financial institutions weathered the Target data breach and are
looking for solutions to enhance security, with many issuers now
planning to implement EMV debit, the study shows. Debit program
performance continues to improve, as active cardholders increase
their usage of debit.
Key findings include:
- Consumers continue to shift to
electronic payments, with transactions per active card increasing
to 20.1 per month from 19.4 a year earlier.
- 84 percent of financial institutions
reissued all exposed cards in response to Target, compared to only
29 percent that typically reissue all exposed cards as a standard
response to breaches.
- 86 percent of financial institutions
stated that they plan to begin issuing EMV cards in the next two
years, a significant increase from 50 percent in 2012.
“In the wake of several high-profile data breaches, the industry
has come together to look for solutions to increase security and
advance EMV implementation,” said Steve Sievert, executive vice
president of marketing and communications for PULSE. “While PIN
debit remains the most secure payment method in the market, this
year’s study confirms the industry is reaching a tipping point
toward EMV. The majority of financial institutions plan to issue
EMV debit cards starting in 2015.”
Target breach was watershed event
The Target breach impacted every financial institution that
participated in the study, causing fraud loss rates to increase in
2013 and compelling issuers to re-evaluate their strategies for
improving card security in 2014, the study found.
Overall, 14 percent of all debit cards were exposed in data
breaches in 2013, compared to 5 percent in 2012. The resulting 2013
fraud losses to financial institutions amounted to 5.7 basis points
for signature debit and 0.7 basis points for PIN debit. Compared
with the prior year, PIN debit fraud loss rates remained constant
at 0.3 cents per transaction, on average, while signature debit
loss rates increased to 2.2 cents per transaction, up from 2.0
cents.
Issuers also reported on fraud loss rates by payment usage
point. International transactions caused loss rates of 51 basis
points, compared to 8 basis points for domestic card-not-present
transactions and 2 basis points for domestic card-present
transactions.
Data breaches heightened attention to issues of debit card
security. Prior to the Target incident, many financial institutions
were hesitant to commit to EMV because of uncertainty around
retailer adoption of chip card point-of-sale terminals, questions
about the viability of the business case for migrating from
magnetic stripe cards to chip cards, as well as unresolved issues
related to regulation and support for merchant routing choice. In
many ways, the Target breach served as a catalyst for the
resolution of these issues.
Although issuers report different opinions regarding the
business case for EMV, the study found that 86 percent of
participating U.S. issuers plan to start issuing EMV debit cards
within the next two years, and most will begin EMV debit issuance
in 2015. The most common strategy among financial institutions is
to provide account holders with an EMV debit card as part of their
regular card reissuance cycle. Migration to EMV debit cards will
begin in earnest in early 2015 and will span approximately three
years, with many issuers attempting to provide chip cards to their
international travelers and heavy debit users in advance of the
liability shift in October 2015.
“We were quite surprised by the across-the-board embrace of EMV
by debit issuers,” said Tony Hayes, a partner at Oliver Wyman who
co-led the study. “There has been a dramatic shift from issuers’
tepid interest last year to their active plans to implement EMV
beginning in 2015.”
Debit continues to grow, as issuers focus on growth
strategies
Outside of the challenges caused by data breaches, debit
continued its growth trajectory in 2013. On the consumer side, the
primary performance improvement was in transactions per active card
per month, which rose to 20.1 in 2013 from 19.4 in 2012. Other
metrics, such as penetration, active rate and ticket size, remained
consistent year-over-year. There was an uptick in usage of business
debit cards: transactions per active card per month grew to 14.5
from 13.5.
Continuing historical trends, signature debit declined in share
of total transactions between 2012 and 2013, falling to 62 percent
from 64 percent for consumer cards, and to 70 percent from 72
percent for business cards. As regulated issuers (those with more
than $10 billion in global assets) receive equivalent interchange
for signature and PIN transactions but incur lower costs on PIN
transactions, large debit issuers now tend to prefer PIN
transactions.
To foster continued debit growth, issuers reported working both
to improve current performance and to make their debit offering
more attractive. Rewards program incidence has rebounded from its
decline following Regulation II implementation. Because traditional
debit rewards programs have unsustainable economics in the post-Reg
II environment for regulated issuers, many financial institutions
have moved to merchant offers. Forty-eight percent of regulated
issuers now offer debit rewards programs, and most of these utilize
merchant offers.
As issuers continue to promote the migration of cash payments to
cards, PULSE expects overall ATM use to naturally decline. In 2013,
ATM withdrawals reached a study-wide low of 2.3 per active card per
month. Large banks expect ATM transactions to continue to decline,
but community banks and credit unions project increased ATM
transaction volume as they seek to drive traffic from the branch to
the ATM.
About the Study
The 2014 Debit Issuer Study is the ninth installment in the
study series. The study provides an objective fact base on debit
card issuer performance and expectations for the debit card
business. Seventy-one financial institutions – including large
banks, credit unions and community banks – participated in the
study, conducted by Oliver Wyman. Of these, 29 have at least $10
billion in assets and are therefore subject to Reg II’s interchange
cap. Collectively, the participants issue approximately 142 million
debit cards and operate approximately 76,000 ATMs; these cards
represent approximately 45 percent of total U.S. debit
transactions. The sample – the largest in the study’s history – is
representative of the U.S. debit market in terms of institution
type, geography and debit network participation. For additional
information about the study, go to
www.pulsenetwork.com/distudy.
About PULSE
PULSE, a Discover Financial Services (NYSE: DFS) company, is a
leading debit/ATM network, serving approximately 6,000 financial
institutions across the United States. This includes more than
4,000 issuers with which PULSE has direct relationships and 2,000
additional issuers through agreements PULSE has with other debit
networks. PULSE links cardholders with ATMs and POS terminals at
retail locations nationwide. Through its global ATM network, PULSE
provides worldwide cash access for Diners Club and Discover
cardholders through 1.3 million ATM locations. The company also is
a source of electronic payments research and is committed to
providing its participants with education on emerging products,
services and trends in the payments industry. For more information,
visit www.pulsenetwork.com.
PULSEPatty Sendelbach, (832)
214-0395patty.sendelbach@pulsenetwork.comorAnne Uwabor, (832)
214-0234anneuwabor@pulsenetwork.com
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