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DT, September 2017

The Fraud Scourge Lessens for Debit Card Issuers
September 1, 2017

Debit card fraud rates fell last year, according to a widely watched annual study of the U.S. debit market. The study also provides new insights about debit cards and mobile wallets, and debit’s increasing popularity for small purchases.

The fraud-loss rate for non-PIN (mostly signature-debit) transactions fell 30% from 2.6 cents per transaction in 2015 to 1.8 cents in 2016 after increasing 18% from 2014 to 2015, according to the recently released 2017 Debit Issuer Study from Pulse, the electronic funds transfer network owned by Discover Financial Services.

For PIN-debit transactions, the fraud-loss rate decreased 25% to 0.6 cents from 2015’s 0.8 cents.

Expressed another way, fraud losses per active debit card decreased to $3.80 from $5 in 2015, according to Oliver Wyman, the New York City-based consulting and research firm that Pulse commissioned to do the study.

Reasons for the decrease include the U.S. conversion to EMV chip credit and debit card payments, which are greatly reducing counterfeit fraud, use of tokenization in mobile commerce, and overall greater use of anti-fraud technology, according to Pulse.

Some 90% of U.S. debit cards now carry EMV chips, the study found. The number of chip-on-chip transactions—where the card and the POS terminal are EMV enabled—stood at 30% in January 2017 compared with 11% the year prior.

“There was all of this talk the industry was moving slow” in converting to EMV, says Tony Hayes, partner and global head of Oliver Wyman’s payments practice. “Last year, clearly it wasn’t.”

Fifty banks, both large and small, as well as credit unions participated in Pulse’s 12th yearly survey of the debit market. The financial institutions collectively issue 134 million debit cards.

In addition to updating issuers and merchants about fraud trends, this year’s survey focused on the usefulness of study results for financial institutions, Steve Sievert, Pulse executive vice president of marketing and brand communications, tells Digital Transactions by email.

Among these metrics is debit card use in mobile wallets. Some 74% of issuers make their cards eligible for use with Apple Pay. Samsung Pay, at 55%, is the next-most popular, followed by Android Pay, 51%, and other wallets, 26%.

As of January 2017, 6.3% of debit cards were loaded onto Apple Pay, an approximately 80% increase from 3.5% a year earlier. Debit cards loaded onto Samsung Pay increased to 0.8% from 0.2%. Android Pay loads increased from 0.2% of cards to 0.6%.

Interestingly, consumers made more transactions per month with an enrolled card on Samsung Pay, an average of 1.3 times, compared with 0.6 for Apple Pay and 0.7 for Android Pay. Part of the explanation could be Samsung Pay’s ability to make contactless transactions with a wireless version of magnetic-stripe technology called MST that expands the number of potential point-of-sale terminals beyond just those equipped with near-field communication technology.

Still, Apple Pay has the highest estimated share of debit transactions at 0.19%, in comparison to Samsung Pay, 0.05%, and Android Pay, 0.02%.

Consumer use of mobile wallets has yet to catch fire. Part of the reason may be that users view loading debit cards into mobile wallets as similar to using them online, from a security standpoint, Sievert says.

One factor that may prompt more mobile-wallet use relates to how wallets can eliminate issues of paying for low-value transactions. Debit cards are ideal for same transactions, too, their proponents argue. The Pulse study found that the 2016 average ticket with a debit card was $39, down from $40 in 2005, but an increase from $37 in 2015.

“When taking inflation into account, this change is probably more significant than it appears,” Sievert says. “The reduction indicates that consumers are increasingly using their debit cards as cash replacement for lower-value transactions.”

Adds Hayes: “A few years ago, if something was a few bucks, most would have paid with cash.”

Other data from the Pulse study show that, overall, consumers made 22.9 transactions per active card per month. Annual spend per active card was $10,530 in 2016.

In another finding, the study says the average blended interchange rate for issuers exempt from the interchange controls imposed by the Dodd-Frank Act’s Durbin Amendment—those with fewer than $10 billion in assets—was 39 cents in 2016, the same as in 2015.

—Kevin Woodward

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