HOUSTON -
The PULSE 2007 Debit Issuer Study, conducted by Dove Consulting, found issuers reported average transaction growth of 20.3% for signature debit and 15.7% for PIN debit last year, with large banks experiencing the highest growth rates.
According to the study, debit card activation rates averaged 56% in 2006 for issuers that define "active" cards as those that have made one signature-based transaction in the last 30 days. On average, active cardholders performed 16.1 transactions per month-10.6 signature-based and 5.5 PIN-based.
Study participants achieved an average debit card penetration rate of 72% for consumer checking accounts, and 86% of the debit cards they issued were signature-capable, PULSE reported.
A total of 55 debit card-issuing financial institutions participated in the study. These large banks, community banks and credit unions collectively issue more than 62 million debit cards.
Overall Findings
Business debit cards are offered by 64% of the issuers surveyed and account for 5% of their total card base. (All of the large banks in the study offer business debit cards.)
* More participating institutions offered debit card rewards in 2006 (37%, compared to 33% in 2005). Of those participants that offer debit rewards, 37% reward cardholders for both PIN and signature transactions, compared to 29% in 2005.
* Four percent of the issuers surveyed issued contactless cards in 2006. An additional 22% plan to do so in 2007, and 29% are considering it.
"Contactless cards are a hot topic in the industry, but most issuers are taking a 'wait and see' approach," said Tony Hayes, VP with Dove Consulting and project lead on the study. "Reasons for their hesitation include lack of widespread merchant acceptance, high levels of uncertainty about the future of the product and fraud-related concerns" (see related story, page 16).
Fees & Interchange Findings
Twenty-eight percent of the issuers surveyed charge a PIN debit transaction fee to at least some account holders, compared to 32% in the previous study. These fees average $0.48 and affect 5% of cardholders.
* Foreign ATM fees levied by survey participants averaged $1.44 per transaction in 2006.
* Fifty-six percent of participants allow overdrafts on debit transactions.
"Interchange is an important source of revenue for issuers, but deciphering interchange rates can be complex," Hayes said. "What matters for issuers is the 'effective' interchange rate-the blended average rate across all merchants and transaction types, after network switch fees."
Interchange pricing can vary depending on merchant segment, merchant transaction volume and authorization mechanism. Issuers say they have a much better understanding of the interchange they receive on signature debit transactions compared to PIN debit. Effective net interchange income averaged 111 basis points (BPs) for signature debit and 46 BPs for PIN debit. These averages are based only on the study participants that reported interchange income.
Fraud-Related Findings
In order to capture a full year's worth of fraud data, issuers in the study were asked to report fraud-related information from 2005 (the previous study captured 2004 data).
"Fraud is shifting from the cardholder level to the system level, from a local issue to a global issue, and from predominantly signature debit to both signature and PIN debit," Hayes said.
Based on fraud losses reported by study participants, Dove estimates that issuers nationwide lost a total of $662 million to debit card fraud in 2005, a 21% increase over 2004. Of these losses, 60% resulted from ATM transactions, 37% from signature debit transactions and 3% from PIN point-of-sale (POS) transactions. Signature-based losses grew 28% in 2005, while PIN-based losses (including ATM and PIN POS losses) rose 17%.
For info: www.pulse-eft.com.
