Apr. 29, 2008

PULSE 2008 Debit Issuer Study Reveals Continued Debit Growth And Potential For Improved Performance Among U.S. Debit Card Issuers

Initial Findings of Comprehensive Survey Include Issuer Performance Comparisons, Fraud Trends and Issuers' Outlook for Debit Card Business


  • Survey Sample Represents 28 Percent of Debit Cards Issued in U.S.

  • Issuers Experienced Transaction Growth of More Than 14 Percent in 2007

  • "Best-in-Class" Issuers Outperform Market, Demonstrate Tremendous Potential in Debit

  • Fraud Remains Top Concern

HOUSTON--(BUSINESS WIRE)--April 29, 2008--Highlighting consumers' increased use of debit, U.S. financial institutions experienced continued growth in debit card transactions in 2007, according to a new study commissioned by PULSE. The 2008 Debit Issuer Study also revealed superior performance by "best-in-class" issuers, suggesting significant untapped potential in debit for many financial institutions.

The 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 study offers a revealing look at debit issuer performance in key metrics, recent debit card fraud trends and debit issuers' outlook for the industry in 2008.

Overall, the issuers surveyed experienced debit transaction growth of 14.4 percent in 2007, comprising a 15 percent increase in signature debit transactions and 14 percent growth for PIN debit. Although transaction growth remained strong in 2007, it was lower than the 18 percent growth rate experienced in 2006 by participants in the previous PULSE study.

"Despite having a strong year in 2007, issuers are implementing a number of programs aimed at improving the performance of their debit card programs in 2008," said Cindy Ballard, PULSE executive vice president. "These efforts center on rewards programs, targeted cardholder promotions and expansion into new products and new merchant categories."

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 the debit cards in the U.S. The institutions also represent 46,000 ATMs and are balanced across institution size, type, geography and network participation.

Issuer Benchmark Performance

The issuers surveyed by Oliver Wyman indicated that 86 percent of their debit cards are signature-capable, with 14 percent being ATM/PIN-only cards. This is essentially unchanged from the 2007 study. In addition, approximately 20 percent of survey respondents said they are planning to convert at least some portion of their ATM/PIN-only cards to dual-capability (PIN and signature) cards during 2008.

Of the debit transactions conducted by the issuers' cardholders in 2007, 65 percent were signature authorized and 35 percent were PIN authorized. This ratio has fluctuated within a fairly narrow band since the original study was conducted in 2005.

The study revealed an average debit card penetration rate of 73 percent for respondents in early 2008, compared to 72 percent in 2006, when the previous study was conducted. Respondents' card activation (defined as the card being used for one signature debit transaction within the last 30 days) averaged 59 percent in early 2008 versus 56 percent in 2006.

On average, active cardholders performed 16.6 point-of-sale (POS) transactions per month in 2007, an increase over the 16.1 transactions per active card seen in 2006. Respondents reported an average ticket size of $43 for PIN debit and $38 for signature debit, compared to $42 and $40, respectively, in the previous study.

The survey also revealed that 9 percent of PIN debit purchases included cash back. ATM cash withdrawals exceeded PIN debit cash-back withdrawals by a ratio of 9 transactions to 1, and by a ratio of 30 to 1, in terms of dollars withdrawn.

Of the issuers surveyed, 25 percent reported charging a PIN debit transaction fee at the point of sale to at least some cardholders. This is a decline from 28 percent in 2006, and from 32 percent in 2005. Per-transaction fees averaged $0.53 but affected only 0.6 percent of cardholders, compared to 5 percent in the previous survey.

Best-in-Class Issuers

While 2007 marked an easing of debit card transaction growth rates, best-in-class issuers - defined as the top 25 percent in each performance measurement - were as much as 50 percent more effective in key metrics, compared to the average for all respondents.

Results for best-in-class issuers exceeded averages for all respondents by:

  • More than 20 percent in debit card penetration;

  • More than 30 percent in transactions per active cardholder per month; and

  • More than 42 percent in signature transactions per active cardholder per month.

Best-in-class issuers also achieved more than 55 percent lower fraud losses per gross dollar value.

Best-in-class issuers are not always large financial institutions, noted Tony Hayes, an Oliver Wyman partner, who served as project lead on the study. "In the area of fraud, for example, credit unions and community banks tend to lead large banks," he said. "This is likely due in part to differences in account holder profiles among the institution types."


Debit card issuers' fraud loss rates were higher for 2007 than for 2005, the period studied in the previous PULSE survey. Issuers surveyed lost 5.40 basis points (0.054%) per dollar spent through signature debit transactions in 2007 and 1.09 basis points (0.0109%) through PIN debit transactions.

Data breaches, stolen cards and phishing were the mostly commonly reported points of compromise for debit card fraud involving card information only. For incidents in which PINs were also obtained, ATM tampering, data breaches and "friendly fraud" (unauthorized transactions conducted by the cardholder's family or friends) were the most common points of compromise.

All of the 62 financial institutions surveyed had debit cards potentially compromised in data breaches in 2007. At the same time, more than 80 percent of survey respondents reported implementing new fraud tools within the past year.

"Although tools such as CVV/CVC checking and neural networks have proven effective, fraud continues to be a significant challenge for financial institutions, and constant vigilance is required to combat increasingly sophisticated techniques," said Hayes. "Most of the issuers surveyed believe the next step in the continued evolution of fraud management is to improve collaboration among key constituencies in the industry: issuers, networks, processors and merchants."

Industry Implications

Respondents pointed to maintaining debit transaction growth and managing fraud losses as significant challenges for 2008. Despite these concerns, Hayes believes there is still plenty of upside potential for debit card issuers. Based on the most commonly used definition of "active cards," for example, in any given month 41 percent of cards are not being used by cardholders to make debit purchases.

The survey indicated that issuers are planning to take a variety of steps to improve the results of their debit card programs. These include:

  • Re-tooling debit card rewards programs;

  • Using customer segmentation to target promotions to selected cardholder groups;

  • Focusing on business debit; and

  • Increasing debit card usage in small-ticket environments, as well as for bill payments.

The study results demonstrate significant reason for continued optimism among debit issuers.

"The 2008 Debit Issuer Study revealed compelling differences between best-in-class issuers and the average for all respondents," said Ballard. "These key distinctions can be vital for counteracting the challenges of slightly slower growth and increased fraud. By sharpening their focus on debit, issuers have the opportunity to raise their game to the level of best-in-class performers."


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 initial findings from the 2008 Debit Issuer Study by contacting one of the people listed below.

Anne Rhodes, 832-541-2513
Golin Harris
Hazel Cobb, 972-341-2537


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