The 2016 Debit Issuer Study Details the Evolution of Chip Cards and
Mobile Payments
HOUSTON--(BUSINESS WIRE)--
The 2016 Debit Issuer Study, commissioned by PULSE, takes stock
of the debit industry’s shift to chip (EMV) cards and mobile payments.
As a result of the October 2015 liability shift, financial institutions
have begun their chip debit card roll-out in earnest with optimism about
the technology’s potential for enhancing the security of payment card
transactions.
The study also details financial institutions’ move to support more
mobile payment options as competition grows among mobile wallet
providers.
“In this sea of change, core debit performance metrics remain strong,
with debit use growing with each installment of the study,” said Steve
Sievert, Executive Vice President of Marketing and Communications for
PULSE. “This year’s results provide key facts behind the shift to chip
debit cards and mobile payments, two of the most significant
developments within the payments industry.”
Issuers rapidly upgrading to chip technology
The October liability shift marked a key milestone for issuers’
transition to chip card technology. By the end of 2015, almost half (45
percent) of issuers had begun issuing chip debit cards, although this is
much lower than the 90 percent of issuers that indicated in the prior
year’s study that they expected to have chip cards in the market by the
end of 2015.
Based upon issuers’ actual card migration, the study estimates that
one-third of all debit cards featured a chip by year-end 2015. The study
forecasts that approximately three in four debit cards will be
chip-enabled by year-end 2016.
Chip usage is limited, growth surging
Largely due to the slower-than-anticipated pace of merchant adoption,
the use of chip cards at chip-enabled terminals remains limited. Even
among consumers using chip debit cards, only 11 percent of their chip
card transactions were at chip-enabled terminals. The remaining 89
percent were processed as traditional magnetic stripe or
card-not-present transactions, such as online purchases.
When taking into consideration all debit card transactions, chip debit
transactions (chip cards used at chip-enabled terminals) accounted for
only 4 percent of total debit transactions.
Nonetheless, chip debit transactions are growing at triple-digit rates
year-over-year. Issuers view the shift to chip debit cards as a critical
step toward increasing the security of card-based transactions and
reducing fraud loss rates.
Mobile payments gaining traction but usage is limited
More financial institutions are supporting the ability to pay at the
point of sale with a mobile phone. By the end of 2015, two-thirds of
issuers had debit cards eligible to be loaded into a mobile wallet. The
previous Debit Issuer Study found fewer than one-third had that
capability, signaling a year-over-year increase of more than 100 percent.
The 2016 Debit Issuer Study notes that mobile wallets have
greater adoption with financial institutions than with cardholders.
Apple Pay dominates the market, with approximately 3.5 percent of
eligible debit cards loaded, compared to 0.2 percent each for Samsung
Pay and Android Pay.
Cardholder usage was higher for Samsung Pay and Android Pay in January
2016, averaging 1.8 and 1.7 transactions per enrolled card per month,
respectively, compared to 0.7 transactions for Apple Pay. Combined, the
three “Pays” generated approximately 8 million debit transactions per
month at that time.
“Despite limited usage, mobile payments have now become a table-stakes
offering for financial institutions,” said Tony Hayes, a partner at
Oliver Wyman who co-led the study. “Issuers foresee a near-term boom in
mobile payments – nearly half of issuers project mobile payments to make
up over 25 percent of debit transactions in five years’ time. That would
make mobile a primary payment method.”
Debit continues to grow and maintain top-of-wallet status
Issuers saw sustained growth in penetration, activation and usage
metrics in 2015. On consumer debit cards, transactions per active card
increased four percent year-over-year to 22.1 per month. The penetration
rate ticked up slightly from 76 percent to 77 percent. Business debit
also saw similar gains, with transactions per active card per month
growing from 14.5 in 2013 to 15.0 in 2015.
Fraud continues to challenge issuers
Data breaches remained the most common source of fraud but accounted for
33 percent of fraud losses in 2015, a decline from 57 percent in 2014.
This was offset by an almost three-fold increase in skimming – from 7
percent to 20 percent of all fraud losses.
The increased skimming – and related rise of in-footprint fraud (i.e.,
fraud within a financial institution’s primary market, which requires
more sophisticated techniques to mitigate) – led to a tripling of PIN
POS fraud to $0.008 per transaction. By contrast, when a debit card is
used without the added security of a PIN, the loss rate is three times
higher, averaging $0.026 per transaction.
“Issuers expect that broader adoption of chip cards, and the
tokenization of transaction data that is tied to mobile payments, will
help to mitigate against losses resulting from debit card fraud in the
future,” said Jim Lerdal, PULSE Vice President of Fraud Operations.
“It’s never been more important to have access to experts who can track
fraud in real time, enabling rapid response and minimal impact on
cardholders.”
About the Study
The 2016 Debit Issuer Study is the 11th installment in
the study 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-two financial institutions – including
large banks, credit unions and community banks – participated in the
study. Collectively, the participants issue approximately 153 million
debit cards and operate about 77,000 ATMs. These cards represent
approximately 48% 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.
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Source: PULSE