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
HOUSTON--(BUSINESS WIRE)--Jun. 24, 2014--
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:
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Consumers continue to shift to electronic payments, with transactions
per active card increasing to 20.1 per month from 19.4 a year earlier.
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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.
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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.
Source: PULSE
PULSE
Patty Sendelbach, (832) 214-0395
patty.sendelbach@pulsenetwork.com
or
Anne
Uwabor, (832) 214-0234
anneuwabor@pulsenetwork.com