Initial Findings of Comprehensive Survey Include Issuer
Performance Comparisons, Fraud Trends and Issuers' Outlook for Debit
Card Business
Summary:
- 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."
Fraud
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."
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 initial findings from
the 2008 Debit Issuer Study by contacting one of the people listed
below.
CONTACT: PULSE
Anne Rhodes, 832-541-2513
arhodes@pulse-eft.com
or
Golin Harris
Hazel Cobb, 972-341-2537
hcobb@golinharris.com
SOURCE: PULSE