Cost of Chip Cards is Double That of Magnetic Stripe
HOUSTON--(BUSINESS WIRE)--Sep. 10, 2015--
Ninety percent of U.S. financial institutions either have begun issuing
chip (EMV) debit cards or currently plan to do so by the end of 2015,
according to the 2015 Debit Issuer Study commissioned by PULSE.
Based on these plans, 25 percent of U.S. debit cards – approximately 71
million cards – will be migrated to chip by the end of 2015. The
percentage is expected to rise to 73 percent by the end of 2016 and 96
percent by the end of 2017.
“The 2015 Debit Issuer Study provides the most compelling
evidence so far that we are quickly approaching the end of
magnetic-stripe-only cards and entering the era of chip cards,” said
Steve Sievert, Executive Vice President of Marketing and Communications
for PULSE, one of the nation’s leading debit/ATM networks. “With fraud
continuing to be a major concern among cardholders and a top priority
for financial institutions, the issuance of chip cards represents a
major step toward reducing losses from counterfeit cards.”
Majority of issuers plan accelerated migration
While most financial institutions plan to begin issuing chip cards by
the end of this year, the full rollout will take time. The majority of
issuers (62 percent) plan to implement chip debit cards using an
accelerated migration strategy.
That approach includes combining natural reissuance when their account
holders’ debit cards expire, with a targeted reissuance to heavy card
users, international travelers and other customers who request a chip
card. The other approaches are natural migration (used by 23 percent of
issuers) and mass migration (used by 15 percent).
As required by Regulation II, issuers will include the application
identifier (AID) for at least two unaffiliated networks on their chip
debit cards, with most planning to make chip-and-PIN the preferred
approach for their cardholder verification method.
Chip card cost
Financial institutions estimate the cost of a chip debit card will be
double that of a standard magnetic-stripe card. Large banks report the
lowest average cost of $2.17 per chip card, while credit unions have the
highest average cost at $2.90 per chip card.
According to the study, 71 million debit cards will be reissued as chip
cards this year. Based on the higher cost of chip cards, financial
institutions will spend an incremental $69 million to replace
magnetic-stripe cards with chip cards in 2015 and $266 million overall
for the entire migration period. 1
Migration to chip debit cards in the U.S. is motivated by increasing
concerns about data breaches and has been facilitated by resolution of
the barriers to chip debit card implementation, including the
requirements of Regulation II for merchant routing options. Financial
metrics are not driving chip card issuance. Only 56 percent of financial
institutions have built a business case to support issuance of chip
cards, according to the study.
“The industry’s migration to chip debit cards is not motivated by the
promise of profits,” said Tony Hayes, a partner at Oliver Wyman who
co-led the study. “Instead, issuers report that they are investing to
help safeguard cardholder information, enhance the integrity of the
overall payment system and protect their own reputation.”
Fraud continues to be a top priority
More than 70 percent of issuers cite fraud as a key challenge for their
debit business. Every financial institution participating in the study
reported their cards were associated with a data breach in 2014.
However, less than one percent of all cards experienced fraudulent
activity.
Overall, issuers reported losses of 0.7 basis points to fraud when the
debit card was used with a PIN and 6.1 basis points when the card was
used with a signature. These reported loss rates translate into 0.3 and
2.2 cents per transaction, on average, for PIN and signature debit,
respectively.
During the past decade, PIN debit loss rates reported by issuers have
stayed constant (from 0.6 to 0.7 basis points), while signature fraud
loss rates have increased by 30 percent (from 4.7 basis points in 2005
to 6.1 basis points in 2014).
Issuers expect signature debit fraud to increase and PIN debit fraud to
remain stable as the industry ramps up chip card conversion. They
anticipate lower fraud rates, however, once the more secure chip debit
cards are fully adopted.
Chip card resources are available
As institutions migrate their debit portfolio to chip cards, it is
critical to ensure a positive cardholder experience during the
conversion. To support these outreach efforts, PULSE has produced a video
to help inform cardholders about the benefits of chip cards and how they
work at the point of sale and ATMs.
In addition to the video, PULSE has resources available on its Debit
Resource Center, including a white
paper that outlines tips for implementing a cardholder communication
strategy when migrating to chip cards.
About the study
The 2015 Debit Issuer Study is the tenth installment in the
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 financial institutions – including large banks,
credit unions and community banks – participated. Collectively, the
participants issue approximately 147 million debit cards, representing
47 percent 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.
1 This estimate does not include the additional cost of chip
debit cards that will be issued to new account holders or replacement
cards for chip cards that are lost, stolen or compromised.
View source version on businesswire.com: http://www.businesswire.com/news/home/20150910005540/en/
Source: PULSE
PULSE
Patty Sendelbach, APR, 832-214-0395
patty.sendelbach@pulsenetwork.com