Highlights from the 2007 Debit Issuer Study

Welcoming Steve Bacastow

Dove Selected to Conduct Fed's 2007 Electronic Payments Study

ATM Operating Systems

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Home > On Payments Issue #18

Debit continues to gain ground, with issuers reporting strong growth in both their PIN and signature debit transaction volumes. At the same time, however, the debit industry is showing signs of maturity. No longer an emerging payment method, growth rates are slowing and issuers are increasingly concerned about rising fraud levels and data security breaches. As they monitor their performance metrics and think about their debit strategy, many issuers wonder how their portfolios compare to other financial institutions—and where opportunities may lie.

In this issue of On Payments, we share some of the key findings from the 2007 Debit Issuer Study. Based on data from 55 debit issuers representing 62MM cards, this study provides a comprehensive analysis of the U.S. debit card industry, providing insights into transaction activity, interchange rates, rewards programs, and fraud losses.

To sign up for an online subscription to On Payments, please click here.

Highlights from the
2007 Debit Issuer Study

The debit market continues to evolve: transactions volumes are increasing; network competition is intensifying; the tug of war between PIN and signature debit persists; debit rewards programs are expanding; and, unfortunately, fraud levels are rising.

To help issuers understand the ongoing trends in debit, Dove recently completed the 2007 Debit Issuer Study on behalf of PULSE EFT Association. Based on interviews with 55 debit card issuers representing 62.3MM debit cards, the 2007 study provides updated benchmarks for performance metrics and identifies best-in-class standards; explores network interchange rates; and profiles the landscape of debit rewards programs. It also documents fraud loss levels, and provides insight into points of compromise and issuers’ prevention tactics.

Key findings from the study include:

  1. Both PIN and signature debit transaction volumes increased over the past year, with signature growth outpacing PIN (20.3% vs. 15.7%).
  2. Most issuers have achieved relatively high account penetration rates, and 86% of all debit cards are signature-capable—looking forward, growth will come from increased card activation and usage, and less so from increased penetration.
  3. Active card rates average 56% for issuers who define ‘active’ as one signature debit transaction in the last 30 days.
  4. On average, active cardholders perform 10.6 signature-based and 5.5 PIN-based transactions per month.
  5. 28% of issuers surveyed charge a PIN debit transaction fee to at least some of their customers; these fees average $0.48 and affect an estimated 5% of cardholders.
  6. The effective interchange rate issuers receive (net) averages 111bps for signature debit and 46bps for PIN debit (which translates into average revenue of $0.414 and $0.203 per transaction, respectively).
  7. 37% of issuers overall currently offer debit rewards programs for at least some of their consumer cardholders.
  8. Issuers are increasingly rewarding cardholders for both PIN and signature debit usage; among issuers that offer rewards, 37% reward cardholders for both types of transactions, up from 29% in 2005.
  9. Between 2004 and 2005, industry-wide, debit issuers’ net losses increased 21%, from $546MM to $662MM.
  10. 60% of issuers’ losses resulted from ATM transactions, 37% from signature debit transactions, and 3% from PIN POS transactions; signature-based losses increased 28% in 2005, while PIN-based losses (ATM and POS) increased 17%.
  11. Issuers rated CVV/CVC checking, neural networks, and international transaction blocks as the most effective tools for reducing fraud losses.
  12. Looking forward, issuers predict that debit transaction volume will increase 17% over the next year, with PIN debit growth exceeding signature debit growth (18% vs. 16%).

For learn more about the 2007 Debit Issuer Study, click here to read PULSE's press release.

Welcoming Steve Bacastow

We are pleased to announce the latest addition to Dove Consulting, Steve Bacastow. Steve joins Dove as a Senior Manager in our Financial Services Group, focusing on payment technology issues and the alignment of technology and business strategy.

Steve is a 30-year veteran of the payments industry with particular expertise in financial services technology. Prior to joining Dove, Steve was a Partner at Collective Dynamics, an Atlanta-based payments and financial services firm. He has also held senior positions at International Shared Solutions and Global Concepts, both Atlanta-based payments consulting firms, as well as Equifax, Southern Company and SunTrust Bank.

Steve can be reached at sbacastow@doveconsulting.com or at 678-627-4991.

Dove Selected to Conduct Fed's 2007 Electronic Payments Study

In 2000, the number of checks paid exceeded the number of electronic transactions, 41.9Bn to 30.6Bn. By 2003, the number of electronic transactions exceeded checks paid, 44.5Bn to 36.7Bn.

These numbers come from the Federal Reserve’s Retail Payments Study, conducted in 2001 and 2004, which tracks the ongoing migration from paper to electronic payments. It is now time to update that study and we are very pleased that the Fed has again selected Dove to perform the electronic payments component of this research, quantifying the number and value of ACH, credit, debit, and prepaid transactions.

To view the Federal Reserve’s press release announcing the 2007 Retail Payment Study, please click here.

If you have questions or would like to participate, please contact Ed Bachelder or Joel Stanton.

ATM Operating Systems

Prompted by technical obsolescence, the underlying technology used by ATMs across the country is rapidly changing, as banks and credit unions shift from OS/2-based ATMs to Windows-based ATMs.

This migration of ATM operating systems is well underway, with Windows-based ATMs expected to account for 63% of the installed ATM base by 2008 (up from just 26% in 2006). The use of Windows-based ATMs presents new challenges for FIs—but it opens new doors for deployers to explore multi-vendor software, introduce new functionality, and customize the user experience.

Tony Hayes shared his point of view on the migration from OS/2 to Windows-based ATMs in the Winter issue of Windows on Financial Services. To read the full article, click here.