Amid Recession, PIN Debit Growth Far Outpaces Signature

While the recession is making an impact on consumer spending generally, PIN debit card usage is faring considerably better than that of signature debit. Indeed, PIN debit transactions by consumers grew 15% between July and December, the period during which the economic downturn began making itself felt, nearly four times the rate of growth for debit transactions secured with a signature, according to research released on Thursday by the Pulse electronic funds transfer network. The study, conducted for the Houston-based network by consulting firm Oliver Wyman Group, also found that fraud rates on debit card transactions are falling; that usage of debit cards for bill payments, including online PIN-less payments, is registering significant numbers; and that awareness of a wide range of alternative-payment methods is very high among bank card executives. Also, the study shows steadily rising adoption by banks of mobile-banking technology. While the data regarding the growth of PIN debit transactions may cheer some, such as merchants, that benefit from the lower acceptance cost of PIN as compared to signature debit, the data also reveal that that faster growth for PIN debit comes on what continues to be a smaller share of total debit card transactions. Signature-based transactions accounted for 65% of all debit point-of-sale payments, versus 35% for PIN debit, up only slightly from 34.2% in 2007. At the same time, average tickets are declining for both PIN and signature debit. The average amount spent on a signature-debit transaction was $37 last year, compared to $38 in 2007. The average for PIN debit was $42, down from $43. PIN debit's average, however, is inflated somewhat by the inclusion by some banks of cash-back at the point of sale in their volume statistics. There is some cause for cheer, however, in the study's fraud data. Losses per card on signature-debit cards dropped 6% in 2008 from 2007, from $1.92 to $1.81; on PIN debit cards, the decline was even more pronounced, at 21% from 19 cents to 15 cents. Measured in terms of losses per transaction, the falloff was similar: down 8% for signature debit and a 29% plunge for PIN debit. One countervailing trend was the increase in ATM fraud. While fraud sourced to point-of-sale debit (PIN and signature) fell from 75% to 62% of all debit card fraud, losses stemming from ATMs soared to 38% from 25%. And, with data breaches proliferating, the Pulse study also found fewer issuers performing mass reissuance of cards following a breach. Only 5% of issuers mass reissued in 2008, down from 25% in 2007. Though the study credits this trend to better fraud monitoring at banks, a recent study by Actimize found issuers are still sending out large quantities of new cards unnecessarily following notice of a breach (Digital Transactions News, May 13). Issuers looking for other good news could find it in the fact that debit cards are claiming a rising share of bill payments and of e-commerce traffic. Some 9% of all signature-debit transactions now come from the Internet, up from 6% in 2007. Bill payments, meanwhile, now account for 10% of signature-debit volume. For PIN debit, so-called PIN-less transactions are starting to register, claiming 1% of PIN debit transactions. With PIN-less debit, consumers use their PIN debit cards, but not their PINs, to pay certain bills online. As for alternative payments, some 93% of surveyed issuers showed awareness of PayPal, the highest-scoring result among some nine alternative methods. Indeed, more than half of the institutions were aware of eight of the nine. Only Revolution Card, at 49%, fell below the 50% awareness level. Second to PayPal was decoupled debit, at 87%, with Google Checkout coming in third at 81%. With decoupled debit, an issuer markets cards that link to accounts held at another institution, typically relying on the automated clearing house to settle transactions. Banks also showed increasing adoption of programs that allow customers to perform account transfers, bill payments, and other banking functions on their handsets. Some 37% of issuers were offering mobile banking in 2008, up from 15% in 2007. Thirty-eight percent said they planned to launch a program, up from 28% the year before. The Pulse debit study represents the fourth in an annual series that the network has sponsored. It incorporates responses from 73 financial institutions of various sizes, including community banks and credit unions. Respondents had issued some 94 million debit cards and operated 61,000 ATMs.