The 2016 Debit Issuer Study Details the
Evolution of Chip Cards and Mobile Payments
The 2016 Debit Issuer Study, commissioned by PULSE, takes stock
of the debit industry’s shift to chip (EMV) cards and mobile
payments. As a result of the October 2015 liability shift,
financial institutions have begun their chip debit card roll-out in
earnest with optimism about the technology’s potential for
enhancing the security of payment card transactions.
The study also details financial institutions’ move to support
more mobile payment options as competition grows among mobile
wallet providers.
“In this sea of change, core debit performance metrics remain
strong, with debit use growing with each installment of the study,”
said Steve Sievert, Executive Vice President of Marketing and
Communications for PULSE. “This year’s results provide key facts
behind the shift to chip debit cards and mobile payments, two of
the most significant developments within the payments
industry.”
Issuers rapidly upgrading to chip technology
The October liability shift marked a key milestone for issuers’
transition to chip card technology. By the end of 2015, almost half
(45 percent) of issuers had begun issuing chip debit cards,
although this is much lower than the 90 percent of issuers that
indicated in the prior year’s study that they expected to have chip
cards in the market by the end of 2015.
Based upon issuers’ actual card migration, the study estimates
that one-third of all debit cards featured a chip by year-end 2015.
The study forecasts that approximately three in four debit cards
will be chip-enabled by year-end 2016.
Chip usage is limited, growth surging
Largely due to the slower-than-anticipated pace of merchant
adoption, the use of chip cards at chip-enabled terminals remains
limited. Even among consumers using chip debit cards, only 11
percent of their chip card transactions were at chip-enabled
terminals. The remaining 89 percent were processed as traditional
magnetic stripe or card-not-present transactions, such as online
purchases.
When taking into consideration all debit card transactions, chip
debit transactions (chip cards used at chip-enabled terminals)
accounted for only 4 percent of total debit transactions.
Nonetheless, chip debit transactions are growing at triple-digit
rates year-over-year. Issuers view the shift to chip debit cards as
a critical step toward increasing the security of card-based
transactions and reducing fraud loss rates.
Mobile payments gaining traction but usage is limited
More financial institutions are supporting the ability to pay at
the point of sale with a mobile phone. By the end of 2015,
two-thirds of issuers had debit cards eligible to be loaded into a
mobile wallet. The previous Debit Issuer Study found fewer than
one-third had that capability, signaling a year-over-year increase
of more than 100 percent.
The 2016 Debit Issuer Study notes that mobile wallets have
greater adoption with financial institutions than with cardholders.
Apple Pay dominates the market, with approximately 3.5 percent of
eligible debit cards loaded, compared to 0.2 percent each for
Samsung Pay and Android Pay.
Cardholder usage was higher for Samsung Pay and Android Pay in
January 2016, averaging 1.8 and 1.7 transactions per enrolled card
per month, respectively, compared to 0.7 transactions for Apple
Pay. Combined, the three “Pays” generated approximately 8 million
debit transactions per month at that time.
“Despite limited usage, mobile payments have now become a
table-stakes offering for financial institutions,” said Tony Hayes,
a partner at Oliver Wyman who co-led the study. “Issuers foresee a
near-term boom in mobile payments – nearly half of issuers project
mobile payments to make up over 25 percent of debit transactions in
five years’ time. That would make mobile a primary payment
method.”
Debit continues to grow and maintain top-of-wallet
status
Issuers saw sustained growth in penetration, activation and
usage metrics in 2015. On consumer debit cards, transactions per
active card increased four percent year-over-year to 22.1 per
month. The penetration rate ticked up slightly from 76 percent to
77 percent. Business debit also saw similar gains, with
transactions per active card per month growing from 14.5 in 2013 to
15.0 in 2015.
Fraud continues to challenge issuers
Data breaches remained the most common source of fraud but
accounted for 33 percent of fraud losses in 2015, a decline from 57
percent in 2014. This was offset by an almost three-fold increase
in skimming – from 7 percent to 20 percent of all fraud losses.
The increased skimming – and related rise of in-footprint fraud
(i.e., fraud within a financial institution’s primary market, which
requires more sophisticated techniques to mitigate) – led to a
tripling of PIN POS fraud to $0.008 per transaction. By contrast,
when a debit card is used without the added security of a PIN, the
loss rate is three times higher, averaging $0.026 per
transaction.
“Issuers expect that broader adoption of chip cards, and the
tokenization of transaction data that is tied to mobile payments,
will help to mitigate against losses resulting from debit card
fraud in the future,” said Jim Lerdal, PULSE Vice President of
Fraud Operations. “It’s never been more important to have access to
experts who can track fraud in real time, enabling rapid response
and minimal impact on cardholders.”
About the Study
The 2016 Debit Issuer Study is the 11th installment in the study
series and was conducted by Oliver Wyman, an independent management
consulting firm. The study provides an objective fact base on debit
card issuer performance and financial institutions’ outlook for the
debit card business. Seventy-two financial institutions – including
large banks, credit unions and community banks – participated in
the study. Collectively, the participants issue approximately 153
million debit cards and operate about 77,000 ATMs. These cards
represent approximately 48% of total U.S. debit transactions. The
sample is representative of the U.S. debit market in terms of
institution type, geography and debit network participation.
About PULSE
PULSE, a Discover Financial Services (NYSE: DFS) company, is one
of the nation’s leading debit/ATM networks. Financial institutions,
merchants, processors and ATM deployers across the United States
and around the world depend on PULSE’s comprehensive suite of
products and services and its commitment to providing exceptional
client service, flexibility, security and superior economics. PULSE
also is a resource for debit education, research and knowledge
drawn from more than three decades of industry experience. For more
information, visit pulsenetwork.com.
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version on businesswire.com: http://www.businesswire.com/news/home/20160809005271/en/
PULSEAnne Uwabor, 832-214-0234anneuwabor@pulsenetwork.comorDPK
Public RelationsDan Keeney, 832-467-2904dan@dpkpr.com
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