Financial Institutions Also Express Growing Interest in Emerging
Payments Technologies
Summary:
- Financial institutions increasingly offer surcharge-free ATM
use to cardholders
- More than half the institutions surveyed now offer debit card
rewards programs
- The most-promising prepaid card opportunities for financial
institutions are in payroll cards, health savings/flexible
spending account cards and other corporate programs
HOUSTON--(BUSINESS WIRE)--Aug. 18, 2008--Surcharge-free ATM access
is gaining in popularity among debit card issuers as they explore new
ways to better serve cardholders, according to the 2008 Debit Issuer
Study, commissioned by PULSE. Financial institutions also are
increasingly offering debit rewards.
The 2008 Debit Issuer Study, conducted by Oliver Wyman, provides
new data and comparisons to the results of the 2007 Debit Issuer
Study, released in February 2007. This comprehensive survey offers a
revealing look at debit issuer performance, debit card trends and the
latest debit technologies and service offerings.
"Although growth in debit use remains strong, debit card issuers
are broadening their electronic payment services to include new
payment devices, targeted cardholder perks such as surcharge-free
programs, and greater levels of service," said Cindy Ballard, PULSE
executive vice president. "Based on survey responses, we expect this
trend to continue over the coming years."
A total of 62 financial institutions participated in the study,
including large banks, community banks and credit unions that
collectively issue more than 74 million debit cards, or 28 percent of
U.S. debit cards. The institutions also represent 46,000 ATMs and are
balanced across institution size, type, geography and network
participation.
ATMs
Among issuers surveyed, 56 percent have cards that participate in
a surcharge-free ATM network, while 84 percent of credit union
respondents offer surcharge-free ATM service to their members for
certain "off-us" transactions (transactions made by an issuer's debit
cardholders at ATMs owned by other issuers or organizations).
Additionally, many financial institutions (48 percent of respondents)
offer reimbursement of ATM surcharges, but usually to only a portion
of their cardholders. Of the institutions that reimburse ATM
surcharges, 45 percent limit total monthly per-cardholder
reimbursements.
Other findings related to ATM programs included:
- ATM transaction activity is increasingly "on-us" (transactions
made by an issuer's debit cardholders at the issuer's ATMs),
further limiting cardholders' exposure to surcharges.
- "Active" debit cardholders (most commonly defined by
respondents as those that have made a signature debit
transaction within the past 30 days) perform an average of 3.4
ATM transactions per month.
- Heavy ATM users also tend to be heavy debit card users,
implying that cardholders do not consider the "cash back"
option often available with PIN debit transactions at the
point of sale as a substitute for ATM withdrawals.
Debit Rewards
Offering a debit rewards program can have a variety of benefits
for card issuers, including an increase in transaction volumes,
differentiation from competitors and promotion of debit card use.
The availability of debit rewards has increased significantly
since the previous PULSE study, with 51 percent of respondents now
offering rewards, compared to 37 percent in 2006. An additional 23
percent of issuers surveyed say they are considering adding a rewards
program.
The increase in debit rewards is driven mainly by a growing
interest in cash rewards, which are now offered by 42 percent of
respondents that have debit rewards programs, compared to 16 percent
in 2006. Points-based rewards are the most common program type,
offered by 58 percent of the institutions that have programs.
Merchant-funded rewards programs are gaining in popularity and far
out-pace other program types in terms of cardholder engagement (83
percent).
"Cardholder engagement remains a key challenge for debit rewards,"
said Tony Hayes, an Oliver Wyman partner, who served as project lead
on the study. "A sizeable portion of institutions we surveyed are
planning to revamp their rewards programs in 2008 to generate greater
customer participation and increased return."
Prepaid
The prepaid card market has attracted considerable interest among
financial institutions.
Of survey respondents, 61 percent currently offer open-loop
prepaid gift cards, and an additional 16 percent plan to enter the
market. While many institutions sell gift cards, only 1 percent of
consumers purchase prepaid gift cards from financial institutions.
Payroll, flexible spending account and health savings account
cards have gained traction among large banks, which offer them to
their corporate customers.
"These types of corporate prepaid cards represent a potential
revenue opportunity for financial institutions and are a more natural
fit than gift cards, which are sold quite effectively by retailers,"
said Hayes.
Emerging Payments
The 2008 survey is the first Debit Issuer Study to address
emerging payments technologies. Although all emerging payments options
have benefits, each faces significant growth challenges, says Hayes:
- Contactless cards - Ten percent of respondents currently offer
contactless debit cards (cards equipped with a device enabling
the user to tap the card rather than swipe it). Another 35
percent say they plan to introduce this capability in the
future. Of those that offer contactless, only 24 percent of
their cardbase is contactless, on average. Key barriers to
contactless adoption are low merchant acceptance, unfavorable
cost/benefit ratios and low demand.
- Mobile banking - Fifteen percent of respondents currently
support mobile banking, and another 28 percent say they are
planning to introduce it "soon." With the technology still in
a state of development, most issuers are taking a measured
approach.
- Mobile payments - Mobile payments (the technology includes
mobile phones equipped with payments-enabled chips, as well as
message-based payments) is largely in the research phase, with
56 percent of issuers exploring the possibility of
implementing it.
"The 2008 Debit Issuer Study offered intriguing insights into
financial institutions' interest in and adoption of emerging payments
technologies," said Ballard. "In the coming years, increased use of
such technologies will play a key role in helping issuers grow their
electronic payments businesses."
About PULSE
PULSE is one of the nation's leading ATM/debit networks, currently
serving more than 4,500 banks, credit unions and savings institutions
across the country. PULSE is owned by Discover Financial Services
(NYSE: DFS). The network links cardholders with more than 265,000
ATMs, as well as POS terminals at retail locations nationwide. The
company is also a valued resource for industry research related to
electronic payments and is committed to providing its participants
with education on evolving products, services and trends in the
payments industry. For more information, visit www.pulse-eft.com.
Media may request an executive summary of these additional
findings from the 2008 Debit Issuer Study by contacting one of the
people listed below.
CONTACT: PULSE
Anne Rhodes, 832-214-0234
arhodes@pulse-eft.com
or
GolinHarris
Pam Tate, 972-341-2546
ptate@golinharris.com
SOURCE: PULSE