New Debit Study Ushers in Age of Contactless & Card-Not-Present Payments

Financial institutions had better get used to cardless transactions, according to the 2020 Debit Issuer Study commissioned by Discover Financial Services’ PULSE debit network, which suggests they’re here to stay.

The study revealed card-not-present payments spiked 21% in 2019, compared to 2018.

And account-to-account transfers using debit are the ones to watch, pegged as the fastest growing category of card-not-present transactions. They doubled between 2018 and 2019 and enjoyed 40% of all debit growth, according to the report.

Management consulting company Oliver Wyman conducted the study, which covered 55 financial institutions — including banks, credit unions and community banks that collectively cover 42% of the nation’s debit market and have issued about 157 million debit cards.

The results showed the rate of card-not-present payments grew 10 times more than card payments did in 2019.

That’s because consumers were increasingly shopping online and paying with apps such as Paypal, Venmo and Zelle. Businesses were also using debit transactions to make more payments, such as insurance payouts to their customers or paychecks to gig-economy workers.

And that was before the COVID-19 pandemic and subsequent social distancing measures took effect.

It’s a healthy upward trend, according to PULSE’s executive vice president of product management Jennifer Schroeder.

“Debit is being used more often by more consumers, and in a greater variety of ways than ever before,” Schroeder said. “This year’s Debit Issuer Study shows that, even before the COVID-19 pandemic, debit use was growing in digital-commerce channels. This growth was a key driving force behind the record 77.4 billion debit transactions that were made in the U.S. in 2019, up a very healthy 6.5% year-over-year.”

That said, card payments still represent 73% of all debit transactions, according to the report, which noted they only grew by 2% in 2019.

Tony Hayes, a partner at Oliver Wyman and study principal, said he expects contactless and card-not-present transactions to continue rising — particularly since about 87% of debit cards will be contactless by 2021.

“Card-not-present transactions already represent 27% of all debit transactions and are growing about 10 times faster than card-present transactions,” Hayes said. “That growth will surely accelerate due to a surge in e-commerce, and a shift in many traditional card-present merchant categories, such as grocery and restaurants, to remote card-not-present ordering.”

Before the pandemic, at the close of 2019, almost 30% of the respondents were issuing contactless debit cards to some of their cardholders. But by the end of this year, another 37% are expected to be doing so.

That makes non-interest income for community financial institutions especially important, according to PULSE, which said about 25% of that comes from debit interchange.