HOUSTON– E-commerce and other digital transactions grew nearly 24% year-over-year – more than five times faster than debit transactions initiated with a physical card, according to new findings.
For the third consecutive year, debit issuers’ average net fraud loss per debit transaction declined, sinking to 1.1 cents from 1.3 cents in 2017, according to the just-released 2019 Debit Issuer Study, commissioned by Discover Financial Services’ PULSE debit network and conducted by Oliver Wyman
In addition, consumers are paying with debit more often, and in a wider variety of ways, including person-to- person (P2P) payments and e-commerce purchases, and online bill payments.
Consumer debit use continues to grow, driven primarily by purchases made without physical cards, according to the 14th annual installment of the study. The analysis found one-in-four debit transactions took place without the presence of a card in 2018, compared to one in five in 2017.
“Consumers are increasingly using debit for P2P transfers, business-to-consumer ‘push’ payments and cardless consumer-to-business payments, most of which take place in mobile apps or online,” said PULSE in its analysis. “Push payments are used for the disbursement of funds in cases such as paying gig-economy workers and settling insurance claims.”
Shifting Payment Patterns
As a result of shifting payment patterns, PULSE reported debit use climbed to an average of 24.8 transactions per month per active card in 2018, compared to 23.7 in 2017. Annual spend per active card averaged $11,684, a nearly 8% increase year-over-year.
“People are increasingly turning to debit whether they’re inserting a card at the point of sale, using an app or shopping online,” said Steve Sievert, executive vice president of Marketing and Brand Communications at PULSE, in a statement accompanying release of the data. “Looking ahead, we expect the debit landscape to continue to evolve as issuers enhance anti-fraud measures, respond to changing consumer payments behavior and meet the consumer expectation of a frictionless payments experience.”
Additional Findings
Among the other findings:
Growth in Funds Transfer Services
Although P2P transfers, push payments and other funds transfers account for just 6% of all debit payments made without a physical card, according to the study, the numbers are beginning to add up. An estimated 1.2 billion such payments were completed via debit cards in 2018, nearly all of which was incremental growth.
“These are truly ‘faster payments’ that enable individuals and companies to send and receive funds quickly and easily,” said Judith McGuire, executive vice president of Product Management at PULSE. “We’ve had tremendous success with our account credit transfer service, for example, which uses a debit transaction to push money to consumer accounts.”
Interest in Contactless Cards
The percentage of debit issuers that say they are interested in offering contactless cards nearly doubled year-over-year, with 70% planning to issue contactless cards by the end of 2020. Another 10% already issue some contactless debit cards. Only 20 percent of respondents said they have no plans to offer contactless cards.
“Merchant acceptance of contactless cards has increased since the introduction of mobile wallets a few years ago,” said Tony Hayes, partner at Oliver Wyman and study principal. “Many issuers also said they don’t want to risk being left behind when it comes to contactless.”
Contactless cards are projected to represent as much as 60% of U.S. debit cards by the end of 2021 if financial institutions replace their existing card bases at their expected rates, noted PULSE.
Focus on Digital Transformation
Enhancing digital capabilities is an important area of focus for issuers. When asked about their digital strategies, issuers reported offering, or planning to offer, an array of digital services that fall into four categories, PULSE found, including:
- Providing effective, uninterrupted access to funds through offerings such as self-service card replacement and issuance of virtual cards into mobile wallets upon account opening.
- Driving debit use and wallet share through services such as cardless ATMs, P2P payments and a listing of merchants with which a cardholder has stored his or her card data.
- Enhancing customer engagement through services that include self-service transaction disputes and card freezes.
- Increasing security and controls by providing real-time account holder alerts and implementing multi-factor authentication for online or mobile purchases.
Decline in Fraud Losses
For the third consecutive year, debit issuers’ average net fraud loss per debit transaction declined, sinking to 1.1 cents from 1.3 cents in 2017. Issuers’ average net fraud loss per active card declined to $3.24 per year in 2018 – about 10 percent less than in 2017.
Fraudsters are focusing on transactions initiated without a physical card, which accounted for 69% of fraud claims but only 24% of debit transactions in 2018. This compares to 66% of claims and 20% of transactions in 2017.
“Effective fraud mitigation requires a layered approach that encompasses products, processes and people,” said McGuire. “We’re working internally, and with others in the payments ecosystem, to employ a range of solutions to help financial institutions identify and block fraud on a broader range of debit transactions.”