Debit Study Finds Upgraded Issuer Performance, Lower Fraud Losses
The study suggests card-not-present transactions may be more vulnerable to fraud.
When it comes to mobile payments, the 13th annual survey, commissioned by Houston-based debit/ATM network PULSE, and conducted by Oliver Wyman, a New York City based consulting firm with a large focus on banking and financial services, found that cardholder enrollment in mobile wallets doubled year-over-year while transactions per enrolled card remained flat.
Fifty-nine financial institutions, including credit unions, large and community banks, participated in the study. Together, participants issued approximately 148 million debit cards and represented 42% of the U.S. debit market.
Issuers also disclosed the longtime battle between PIN and signature debit proponents now mostly over. PIN transactions used to be the only realm of electronic funds transfer networks, while signature transactions existed in the card networks’ arena. Now, issuers increasingly track card use by cardholder (in-store or online, for example) rather than the network routing the transaction. This change developed in part by growth in transactions requiring no authentication and card-not-present purchases.
Steve Sievert, executive vice president of marketing and brand communications for PULSE said. “We’ve moved from the simple world of ‘PIN or signature’ to an array of options, including PIN-less and signature-less 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.”
Among the debit fundamentals highlighted:
- Seventy-six percent of checking accounts had associated debit cards in 2017, compared to 75% in 2016.
- The percentage of debit cards used at least monthly grew to 66% from 65%.
- Among active consumer debit cardholders, debit cards users make 23.7 purchases per month, up from 22.9 last year, and an all-time high in the study’s’ history.
Based on fraud losses suffered by the study participants and extrapolated to the entire U.S. debit industry, issuers lost an estimated $850 million on POS debit transactions in 2017, a 5.5% decrease from 2016, likely due to the transition to chip-enabled debit cards. Surveyed issuers have converted 91% of their debit cards to chip cards.
The study suggested card-not-present transactions may be more vulnerable to fraud due to the lack of chip card authentication or, in most cases, PIN protection. Even though CNP transactions account for 21% of transaction volume, they represent 44% of net fraud cases; and an average net fraud loss of $123 per incident.
“As the industry has moved to chip transactions, fraud has migrated to transactions that don’t require a physical card,” Jim Lerdal, vice president of fraud and risk management for PULSE said. “Survey respondents reported that the costs of this fraud are high, amounting to 10.5 cents for every card-not-present transaction, of which issuers bear 1.7 cents, on average. The remaining 8.8 cents constitute losses borne by merchants and cardholder claims that are not charged back.”
On average, issuers in the survey authorized nearly 95% of all attempted debit transactions in 2017. The biggest reason for declined debit transactions among this group is not suspected fraud (0.4%), but insufficient funds (1.8%).
The survey revealed that 86% of responding issuers support at least one mobile payment option, defined as the ability to use a smartphone at a POS, up from 74% in the previous study. Cardholder enrollment in mobile programs doubled in the last year. However, transactions initiated with a mobile wallet barely moved the needle represented only 0.6% of in-store debit card purchases in 2017, compared to 0.3% in 2016.
Enhancing digital capabilities to provide greater cardholder control and flexibility in managing their debit card activity, topped the list of 2018 priorities for survey respondents. Issuers also want to communicate with cardholders for real-time verification and fraud management, and even to automatically provision a digital card in a mobile wallet while awaiting the issuance of a plastic card.
“We see a real opportunity for financial institutions to enhance their debit card offerings with new digital capabilities,” Tony Hayes, a partner at Oliver Wyman who co-led the study, said. “There is a clear link between greater cardholder engagement and overall customer loyalty and retention.”