HOUSTON (6/25/14)--Credit unions and other financial institutions definitely took a operational hit from the Target security breach, but debit card use continued to surge in 2013, according to the 2014 Debit Issuer Study, commissioned by PULSE.
The Target breach affected every financial institution that participated in the study, causing fraud loss rates to increase in 2013 and compelling issuers to re-evaluate their strategies for improving card security in 2014, the study found.
Overall, 14% of all debit cards were exposed in data breaches in 2013, compared with 5% in 2012. The resulting 2013 fraud losses to financial institutions amounted to 5.7 basis points (bp) for signature debit and 0.7 bp for PIN debit. Compared with the prior year, PIN debit fraud loss rates remained constant at 0.3 cents per transaction, on average, while signature debit loss rates increased to 2.2 cents per transaction, up from 2 cents.
Issuers also reported on fraud loss rates by payment usage. International transactions caused loss rates of 51 bp, compared to 8 bp for domestic card-not-present transactions and 2 bp for domestic card-present transactions.
Financial institutions weathered the Target data breach and are looking for solutions to enhance security, with many issuers now planning to implement the Europay-MasterCard-Visa (EMV) standard debit, the study indicated.
About 84% of financial institutions reissued all exposed cards in response to the Target breach, compared with only 29% that typically reissue all exposed cards as a standard response to breaches.
The study found that 86% of participating U.S. issuers plan to start issuing EMV debit cards within the next two years, and most will begin EMV debit issuance in 2015. The most common strategy among financial institutions is to provide account holders with an EMV debit card as part of their regular card reissuance cycle.
Outside of the challenges caused by data breaches, debit continued its growth trajectory in 2013. Consumers continue to shift to electronic payments, with transactions per active card increasing to 20.1 per month from 19.4 a year earlier. Metrics such as penetration, active rate and ticket size remained consistent year-over-year. There was an uptick in usage of business debit cards: Transactions per active card per month increased to 14.5 from 13.5.
Continuing historical trends, signature debit declined in its share of total transactions between 2012 and 2013, falling to 62% from 64% for consumer cards, and to 70% from 72% for business cards. As regulated issuers--those with more than $10 billion in global assets--receive equivalent interchange for signature and PIN transactions but incur lower costs on PIN transactions, large debit issuers now tend to prefer PIN transactions.
To foster continued debit growth, issuers reported working both to improve current performance and to make their debit offerings more attractive. Forty-eight percent of regulated issuers now offer debit rewards programs, and most of these use merchant offers.
As issuers continue to promote the migration of cash payments to cards, PULSE expects overall ATM use to naturally decline. In 2013, ATM withdrawals reached a study-wide low of 2.3 per active card per month. Large banks expect ATM transactions to continue to decline, but credit unions and community banks project increased ATM transaction volume as they seek to drive traffic from the branch to the ATM.