By now, you’ve probably had an opportunity to examine findings from the 2021 Debit Issuer Study, commissioned by PULSE® and conducted by Oliver Wyman. It is definitely worthwhile to watch the webinar, presented by Steve Sievert.
Following is an overview of actions issuers should consider as they work to optimize their debit programs.
Boost Key Performance Indicators
When it comes to debit program performance, it’s essential for every issuer to know how their “PAU” which stands for penetration, active rate and usage – compares to industry benchmarks.
Penetration is the percentage of your checking account base that has been issued a debit card. The 2021 Debit Issuer Study found that average penetration is nearly 80%, while best-in-class issuers – those in the top 25% of respondents in each performance metric – achieved penetration of 88%, on average.
Actions to Consider: If your institution’s penetration is below-average, it may be time to review your account-opening procedures. Experience has showed that offering instant or digital-first issuance boosts penetration. The study found that 82% of community financial institutions offer instant issuance in branch, but only 53% offer digital provisioning into mobile wallets. Education can also play a role, since misperceptions linger about consumer liability for debit fraud. If new account holders are educated about security features, such as fraud monitoring and zero-liability protection, they are more likely to embrace debit.
Active rate measures the percentage of issued cards that are used at least once in the past 30 days. The study found that average active rate dropped slightly in 2020 to about 67%. The real story, though, is the disparity between the top and bottom performers. The median active rate for issuers in the bottom quartile was just 60%, while best-in-class issuers achieved an average of 81%.
Actions to Consider: Increasing your institution’s active rate might be as simple as highlighting the benefit of using debit for recurring payments. Identify cardholders who aren’t regularly using their debit cards to educate them about debit’s ease-of-use online, in stores, for bill payment, and loaded into digital wallets and apps.
Usage measures the number of monthly transactions per active card. The study found that the average active debit card is used for more than 25 transactions per month. Once again, there was a sizable gap between the top and bottom performers, with those in the lowest quartile reporting their cards are used about 22 times per month, while the best-in-class issuers reported usage averaging more than 27 times monthly. When you consider that the study found the average ticket size per transaction was $44.80, those five monthly transactions add up to nearly $2,700 in additional annual spend per active card.
Actions to Consider: Issuers have successfully increased usage through promotional campaigns such as our Debit & Win It sweepstakes, as described in the article, “Promoting Debit is a Win-Win for Discover® Debit Issuers.” While the program is currently only available to Discover Debit issuers, it is a marketing tactic that any issuer can replicate.
Adjust Fraud Strategies
Fraud loses defied expectations in this year’s study. Collectively, issuers incurred lower POS1 fraud losses, dropping from $880 million in 2019 to $830 million in 2020, a 5.5% year-over-year decrease. Issuer net losses per transaction averaged $1.2 cents, which adds up to $3.53 annually per active debit card.
Many issuers approach fraud management by looking back and analyzing recent attacks. But the dynamic nature of debit fraud, which always seeks to exploit the path of least resistance, means it can be short-sighted to focus too much on the past. Those who were focused on past attacks might have been caught flat footed by the massive changes that swept the payments industry in 2020. The rapid shift to card-not-present (CNP) transactions, which jumped 23%, and the decline in card-present, which dropped about 10%, changed the fraud profile drastically. While one-third of debit transactions were CNP, they accounted for approximately 70% of net fraud claims and half of net fraud losses.
Actions to Consider: Two out of three of the issuers Oliver Wyman spoke with for the 2021 Debit Issuer Study had adjusted their fraud models to better manage fraud during the pandemic. In the words of one national bank respondent, “By proactively changing our fraud rules, we were able to cut our fraud decline rate in half, while also tackling card-not-present fraud.”
Take a balanced approach between reacting to changes as they occur and proactively anticipating trends. The key is to match mitigation efforts appropriately with fraudsters’ behavior shifts. Effective fraud management is a delicate balance between preventing fraud while also making sure authorizations aren’t affected to a degree that you're inconveniencing cardholders. The study found that authorization rates were stable from 2019 to 2020.
For more on this subject, watch a replay of the webinar, Managing Fraud During Times of Crisis.
Accelerate Your Contactless Rollout
Contactless issuance is accelerating, and cardholders want to use the tap-and-pay technology. The 2021 Debit Issuer Study found that issuers rated contactless as their top priority for the second straight year – surpassing fraud management and PAU.
The study found that 30% of all debit cards are now contactless-enabled, which was nearly triple the 11% penetration in the 2020 study. Even so, this was lower than what issuers expected based on last year’s study, and the slight delay can be blamed on the pandemic.
Meanwhile, the number of contactless debit transactions is rapidly increasing. One-third of contactless cardholders use the contactless capability, while about 5% of all transactions made with contactless-enabled cards use the feature. Nonetheless, contactless remains a small share of total transactions. Contactless transactions represent 3% of all card-present payments and 1.6% of total industry volume, which was a 6-fold increase from 2019.
Actions to Consider: While we recognize that each issuer has a unique approach for rolling out contactless cards, the study findings indicate that contactless adoption is accelerating. Based on responses to the study, we expect to see contactless penetration increase to 64% in 2021, rise further to 85% next year and reach 94% in 2023. Issuers may want to consider accelerating their reissuance strategy to convert more cards to contactless sooner.
This quote from one community bank respondent is typical of those waiting for the market to mature before ramping up their contactless rollout: “We only plan to issue NFC-enabled cards to customers in areas with merchant acceptance, not to all new-to-bank customers.” However, the danger in failing to drive the transition is that you could miss the near-term opportunity to meet cardholder demand and put your institution in a vulnerable position long-term by being forced to play catch-up.
PULSE supports contactless payments and offers cryptogram validation services that can help issuers get to market faster with contactless cards.
To hear more about how PULSE can help you optimize your debit program by targeting PAU, fraud management or contactless debit, contact your Account Executive.
1 “POS” includes all card-present and card-not-present purchases and transfers, but excludes ATM transactions