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Top 5 Takeaways from the 2020 Debit Issuer Study

The annual Debit Issuer Study, commissioned by PULSE® and conducted by Oliver Wyman, offers the most comprehensive review of the U.S. debit market. The 2020 study – the 15th edition – dives deep into debit spending and provides banks and credit unions performance benchmarks, industry insights and a glimpse into the future.
The research for the 2020 Debit Issuer Study was completed prior to the COVID-19 outbreak in the U.S. However, as reflected by a companion report by Oliver Wyman, COVID-19’s Impact on U.S. Card Issuers, and supported by recent data shared by PULSE, the pandemic is expected to accelerate many of the trends identified in the study. 
Top 5 Takeaways:
  1. COVID-19 Boosts Demand for Digital – COVID-19 has created uncertainty, but it’s also accelerating trends and impacting consumer spend.
  2. Debit Shifts into High Gear – Consumer preference for debit has never been greater, with year-over-year increases in penetration, active rate and usage in 2019.
  3. CNP Accelerates – Card-not-present (CNP) transaction growth greatly outpaced card-present (CP), and Account-to-account (A2A) transfers served as a primary driver for debit’s overall growth.
  4. Interchange Drives Meaningful Revenue – Debit interchange is a key driver of non-interest income for financial institutions (FIs). 
  5. All Gas, No Brakes for Contactless – Issuers’ top priority for debit in 2020 is clear: contactless card issuance.

COVID-19 Boosts Demand for Digital 

The COVID-19 pandemic is an extraordinary event — a crisis of global proportions unlike any in the past century. The pandemic has uprooted almost every aspect of daily life, including banking, retail sales and payments. Debit transaction volume plummeted 25-30% in mid-March as shelter-in-place rules went into effect and businesses closed. While it has since rebounded to a large extent, two market trends that are highlighted in this year’s study results have been accelerated by the pandemic. These trends are the migration of card-present transactions to the card-not-present environment and greater adoption and use of contactless. 

Debit Shifts into High Gear  

Debit is evolving to match the ongoing digital transformation of our lives, and consumers continue to make it a part of their daily lives. Debit experienced another strong year in 2019 with issuers’ core debit performance metrics of penetration, active rate and usage improving year-over-year. Industry-wide, an estimated 77.4 billion debit transactions were made in 2019, up 6.5% over the prior year.
In fact, every year for the past five years, active cardholders have made one additional monthly debit transaction, on average. In 2019, cardholders performed 25.5 transactions per month, excluding ATM activity. Debit penetration of DDAs increased to nearly 80% in 2019 from 78% in 2018. What does this mean? More accounts have debit cards attached to them and cardholders are using it more. 

CNP Accelerates 

Unpacking the data reveals that debit is a tale of two channels. CNP transactions now constitute 27% of all debit transactions and are growing approximately 10 times faster than CP. transactions. A2A debit payments are a key driver of CNP growth and have emerged as the fastest-growing category of debit. A2A transactions doubled year-over-year, representing 40% of the industry’s total debit transaction growth. An estimated 2.4 billion A2A transactions were processed using debit network rails in 2019, as debit evolves from a purchase capability to also include real-time money movement.

Interchange Drives Economics 

Debit interchange is a key driver of both DDA revenue and overall non-interest income for issuers. Debit interchange represents a material source of revenue for issuers, accounting for 6% of non-interest income for regulated issuers and about 25% for exempt issuers. For issuers that are subject to Regulation II’s interchange cap (those with ≥$10 billion in assets), the key metric that drives debit revenue is the number of transactions; for issuers that are exempt from the interchange cap (those with <$10 billion in assets), debit revenue is more heavily influenced by total debit spend due to higher average interchange rates. 
Due to these differences in interchange rates, exempt issuers earn gross revenue of $116 per active debit card per year, whereas regulated issuers earn $74 per active card. 

All Gas, no Brakes for Contactless 

2020 is the year of contactless. Encouraged by greater merchant acceptance, a better customer experience, and a desire to keep up with competition, issuers cited offering contactless debit cards as their top priority for 2020. Two in three issuers will be issuing contactless debit cards by year-end 2020, while only 9% of the issuers surveyed said they had no plans to offer contactless this year
As of year-end 2019, 11% of all full-function debit cards were contactless-enabled. Most issuers plan to introduce contactless based on natural reissuance cycles (i.e., upon expiration of existing cards and reissuance for lost, stolen or damaged cards), as well as for new cardholders. As a result, penetration of contactless cards is projected to reach 36% by year-end 2020, and 87% by year-end 2022.
With contactless viewed as a “safer” payment method in light of COVID-19, the adoption of contactless cards is likely to accelerate, and tap-and-go transactions are expected to increase.

Get More Insights into the 2020 Debit Issuer Study 

Of course, choosing just five takeaways means we left out many additional important findings that could have made the list, such as continued growth in mobile wallet payments, fraud trends and what digital capabilities issuers plan to invest in.  
Want even more insights? You’ll find a wealth of content on the official 2020 Debit Issuer Study website in the coming weeks, including a replay of our August 5 webinar that is offered first to our PULSE participants. If you would like to learn more about how you can become a PULSE participant, give us a call at (800) 543-3695.