Consumers, issuers really like debit

Debit card issuers are reporting on-gong strong fundamentals as consumers’ nearly 10-year love affair with debit cards continues. According to the 2018 Debit Issuer Study, just released by PULSE, the debit card network owned by Discover, issuers saw year-over-year debit transaction growth increase by more than 5 percent last year.

The survey of issuers, conducted by the independent consulting firm Oliver Wymann, also revealed increases in debit card penetration, activation and usage rates in 2017 vis-à-vis 2016.

The study, which queries banks and credit unions that, combined, issue about 42 percent of debit cards in Americans’ wallets, also pointed to increased efforts by issuers to support mobile payments. In all, 86 percent of issuers support at least one mobile payment option, up from 74 percent previously, the survey found.

Changing preferences, options drive performance

After becoming a widely accepted POS option in the late 1990s, debit cards had long languished in the back of consumer wallets. But that began to change in 2008 as recessionary pressures forced many to shift away from relying on credit in favor of debit cards that access their deposits at financial institutions.

Federal Reserve payment studies reveal that U.S. consumers made 25 billion debit card payments valued at $970 million in 2007; nine years later, in 2016, they made 69.5 billion debit card payments totaling $2.56 trillion in value. At 111.1 billion payments valued at $5.98 trillion, credit card payments still outstripped debit in 2017, but the gap was narrowing.

The Fed’s data makes no distinctions between debit card payments authorized using PINs and those authorized by signatures. The distinctions aren’t that important to issuers anymore, either, the PULSE survey findings suggest.

PIN transactions were once the sole domain of EFT networks, while signature-authorized debit card payments were routed through the credit card networks. But these days, issuers are more focused on where their debit cards are being used (in-store or online, for example) as opposed to which networks they clear through, said Steve Sievert, executive vice president of marketing and brand communications for PULSE.

“The debit landscape continues to change dramatically,” Sievert said. “We’ve moved from the simple world of ‘PIN or signature’ to an array of options, including PINless and signatureless transactions at the point of sale and biometric authentication in digital commerce and mobile wallets. Meanwhile, advances in payments and a stronger overall economy are resulting in improvements in debit’s key performance indicators,” he added.

Improved performance indicators uncovered by the study include:

• Higher penetration rates, as evidenced by 76 percent of checking accounts having associated debit cards in 2017 compared to 75 percent in 2016;
• Better card activation rates – 66 percent of activated debit cards used at least monthly grew from 65 percent to 66 percent;
• Greater usage, with consumers using debit cards to make an average 23.7 purchases a month last year, up from 22.9 percent in 2016, and “an all-time high” in the 13-year history of the PULSE study.

Revenue improvements best pre-Durbin

All of these factors combine to make debit a more profitable proposition for issuers. According to the survey, total issuer revenues now exceed revenues reported prior to debit interchange caps, which were ushered in by the Durbin Amendment to the Dodd-Frank Act. “Although per-transaction interchange has declined since the regulation was implemented, card usage has risen every year,” PULSE noted in a presentation on the survey findings.

Federal Reserve regulations that implement the Durbin Amendment cap debit card interchange at 22 cents plus 0.05 percent of the transaction. But the rule applies only to issuers with $10 billion, or more, in assets. Issuers subject to interchange caps earned an average blended rate of 24 cents per transaction, or $69 per debit card, in 2017 the survey found. Issuers exempt from the cap earned 39 cents per transactions, on average, or $118 per card.

Editorial Note:

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