• Scope and Methodology
  • Scope of Report
  • Report Methodology
  
  
• Introduction
  • A strong and growing market, by any measure
  • A simple transaction triggers a Byzantine process
  
  
• The Market
  • U.S. debit market exceeds $1 trillion
  • Figure 1-1 U.S. Market for Debit Cards, 2003-2007 (in billion $)
  • Table 1-1 U.S. Market for Debit Cards, 2003-2007 (in billion $)
  • Table 1-2 Signature vs. PIN Volume, 2003-2007 (in billion $)
  • Value of debit payments outpaces credit
  • Number of debit transactions exceeds credit for the first time
  • Nearly 29 million debit card transactions in 2007
  • Table 1-3 Estimated Number of U.S Debit Card Transactions, 2003-2007 (in billions)
  • 18 billion signature payments vs. 11 billion PIN, but PIN growing faster
  • Table 1-4 Number of Signature vs. PIN Transactions, 2003-2007 (in billions)
  • Penetration approaching critical mass, but activation is the goal
  • Debit used more frequently for a range of expenses
  • Table 1-5 Payment Options Used, by Type of Purchase: September 2003, 2005, and 2007 (percent)
  • Fraud costs issuers hundreds of millions of dollars annually
  
  
• Issuers collect billions from NSF and overdraft charges
• Decoupled debit—challenge, threat, opportunity
  • Growth to remain strong, but pace will slow
  • Table 1-6 Projected U.S. Market for Debit Cards, 2008-2012 (in billion $)
  • Table 1-7 Projected Number of U.S Debit Card Transactions, 2008-2012 (in billions)
  
  
• The Competitive Environment
  • Industry players focus on attracting and motivating cardholders, not luring them away from rivals...yet
  • Top two players account for one in four transactions
  • Bank of America maintains its overwhelming leadership in the debit arena
  • Wells Fargo’s success seems effortless
  • Table 1-8 Leading Debit Card Issuers: Estimated Number of Transactions, 2005 vs. 2007
  • Rewards programs are key to industry growth
  
  
• The Debit Card Consumer
  • 54% of U.S. adults have a debit card
  • Figure 1-2 Ownership/Usage of Debit Cards: 2004-2007 (U.S. Adults)
  • Figure 1-3 Ownership/Usage of Debit Cards: Overall and by Brand, 2004-2007 (U.S. Adults)
  • Frequency of usage is climbing
  • Over two-thirds of 25-34 year olds have a debit card
  • Table 1-9 Debit Card Ownership Rates by Selected Demographic Characteristics, 2007 (U.S. adults)
  
  
• Debit increasingly used for everyday purchases, bills, gifts
  • Figure 1-4 Use of Debit Cards, by Type of Purchase: March 2008 (percent)
  • Debit Card Owners’ Opinions and Self-assessments Regarding Financial Matters
  
  
• Outlook and Opportunities
  • Growing the market requires investment in technology

Chapter 2 Industry Structure and Trends

• Introduction
• A strong and growing market, by any measure
• A simple transaction triggers a Byzantine process
• Industry Structure: Participants and Processes
  • Card association
  • Demand deposit account (DDA)
  • Card issuer
  • Electronic Funds Transfer (EFT)
  • Table 2-1 Top 10 Pin-Based POS Debit Networks, by Transaction Volume 2006 vs. 2007 (in thousands)
  • Merchant acquirer
  • Fees
  • Signature-based (offline) transactions
  • Figure 2-1 Path of a Typical Signature-Based Debit Card Transaction
  • PIN-based (online) transactions
  • Figure 2-2 Path of a Typical PIN-Based Debit Card Transaction
  • Automated Clearing House (ACH)
  • Figure 2-3 Path of a Decoupled Debit Card Transaction
  
  
• Industry Issues and Trends
  • Battle over interchange is ever-more contentious
  • Banks depend on overdraft fees as a source of revenue
  • Lag time in “real-time” account balances

Chapter 3: The Market

• Market Size and Growth
• Note on methodology
• U.S. debit market exceeds $1 trillion
• Figure 3-1 U.S. Market for Debit Cards, 2003-2007 (in billion $)
• Table 3-2 U.S. Market for Debit Cards, Purchase Volume 2003-2007 (in million $)
• Table 3-3 Signature vs. PIN Volume, 2003-2007 (in billion $)
• Value of debit payments outpaces credit
• Table 3-5 Value of Electronic Credit and Debit Payments 2003 and 2006 (in billion $)
• Number of debit transactions exceeds credit for the first time
• Table 3-6 Number of Non-cash Payments, by Type, 2003 vs. 2006 (in billions)
• Nearly 29 million debit card transactions in 2007
• Table 3-7 Estimated Number of U.S Debit Card Transactions, 2003-2007 (in billions)
• Table 3-8 Estimated Number of U.S Debit Card Transactions, Purchase Volume 2003-2007 (in billions)
• 18 billion signature payments vs. 11 billion PIN, but PIN growing faster
• Table 3-9 Number of Signature vs. PIN Transactions, 2003-2007 (in billions)
• Contributors and Impediments to Market Growth
  • Penetration approaching critical mass...
  • ...But activation is the goal
  • Table 3-10 Debit Card Ownership and Usage Rates, 2004-2007 (U.S. adults)
  • Debit used more frequently for a range of expenses
  • Table 3-11 Payment Options Used, by Type of Purchase: September 2003, 2005, and 2007 (percent)
  • Contactless continues to languish
  • Table 3-12 Contactless Payments Value Proposition
  • More institutions offering rewards programs, but costs may outweigh benefits for some
  • User segmentation may yield more profitable programs
  • Fraud costs issuers hundreds of millions of dollars annually
  • PIN arguably safer, but banks promote signature
  • Card companies blame merchants
  • Consumers don’t buy it
  • Figure 3-2 Ranking of Payment Methods When Making a Purchase at a Grocery Store, 2008 (On a scale of 1 to 7, 1 being most preferred)
  • Table 3-13: Reasons Debit Cardholders Prefer Signature or PIN (percent)
  • “Zero liability” isn’t
  • Issuers collect billions from NSF and overdraft charges
  • Table 3-14 Consumers Preferring Their Debit Card Declined If Account Overdrawn, By Transaction Amount, 2008 (percent)
  • Table 3-15: Issues Raised by Options for Warning Consumers That They May Incur an Overdraft When Using a Debit Card
  • Decoupled debit—challenge, threat, opportunity
  • Did rivals, NACHA derail Cap One’s program?
  • For decoupled debit cards, the horse is out of the barn
  • Implications for issuers and financial institutions: revenues and relationships
  • Implications for merchants: retention
  • Implications for consumers: rewards
  • Logistical concerns linger
  • Projected Market Growth
  • Growth to remain strong, but pace will slow
  • Table 3-16 Projected U.S. Market for Debit Cards, 2008-2012 (in billion $)
  • Table 3-17 Projected Number of U.S Debit Card Transactions, 2008-2012 (in billions)
  • Table 3-18 Projected U.S. Debit Signature vs. PIN Volume, 2008-2012 (in billion $)
  • Table 3-19 Projected Number of Signature vs. PIN Transactions,
  • 2008-2012 (in billions)

Chapter 4 The Competitive Environment

• Industry players focus on attracting and motivating cardholders, not luring them away from rivals...yet
• Top two players account for one in four transactions
  • Bank of America maintains its overwhelming leadership in the debit arena
  • Wells Fargo’s success seems effortless
  • Table 4-1 Leading Debit Card Issuers: Estimated Number of Transactions, 2005 vs. 2007
  • Figure 4-2 Share of Card Volume Among 10 Leading Debit Card Issuers, 2007
  
  
• Marketing Trends
  • Rewards programs are key to industry growth
  • More financial institutions are incentivizing activation and use with merchandise, travel, even cash
  • Some programs are innovative; others are less inspired
  • Table 4-2 Some Features of Selected Rewards Programs
  • Issuers have some work to do to make programs effective drivers
  • Credit framework may not be ideal model for debit rewards
  • Cobranded decoupled debit rewards are limited to merchant partner
  • Use of Visa to pay bills is promoted in sweepstakes
  • MasterCard conveys “Priceless”-ness of debit and credit alike...
  • ...While Mr. Bill triumphs by just getting through the day
  • Bank of America touts its status as Official Bank of Nearly Every Professional Sport
  • “Chase Picks Up the Tab” for lucky holiday signature-debit shoppers
  • Wachovia goes on tour with the Way2Save Challenge
  
  
• Competitor Profile: Visa USA
  • Visa a debit trailblazer and giant
  • Visa Extras offers “fabulous” rewards...for signature-based purchases
  • Visa’s record-breaking Initial Public Offering seen as propelling its plastic-promoting programs
  • Judge puts the kibosh on Visa’s Settlement Service Fee
  
  
• Competitor Profile: MasterCard
  • Standard, Gold, and Platinum debit cards offer tiered benefits
  • MasterCard strikes exclusive debit deal with Upromise for 529 savings
  • MasterCard scores a coup with NFL affinity card
  • MasterCard takes assertive measures to enhance debit presence
  • Together for the first time, debit and credit are equally “Priceless”
  
  
• Bank of America takes full advantage of affinity program acquired with MBNA
  • Keep the Change generates $1 billion in savings
  • Alma maters, causes, passions...Bank of America transforms affinity banking
  • At a Glance: Players in game-changing positions

Chapter 5 The Debit Card Consumer

• Methodology
• Ownership Rates
  • 54% of U.S. adults have a debit card
  • Figure 5-1 Ownership/Usage of Debit Cards: 2004-2007 (U.S. Adults)
  • Table 5-1 Ownership/Usage of Debit Cards: Overall and by Brand, 2004- 2007 (U.S. adults)
  • Figure 5-2 Ownership/Usage of Debit Cards: Overall and by Brand,
  • 2004-2007 (U.S. Adults)
  • Frequency of usage is climbing
  • Figure 5-3 Debit Card Monthly Usage Rates by Brand, 2004-2007 (U.S. adults)
  • Over two-thirds of 25-34 year olds have a debit card
  • Table 5-2 Debit Card Ownership Rates by Selected Demographic Characteristics, 2007 (U.S. adults)
  • Nearly three in four debit card owners are white
  • Table 5-3 Debit Card Ownership Rates by Concentration Within Selected Demographic Characteristics, 2007 (U.S. adults)
  • Asians are exceptionally heavy owners of MasterCard debit
  • Table 5-4 Debit Card Ownership Indices by Selected Demographic Characteristics, 2007 (U.S. adults)
  
  
• Debit Card Usage Rates
  • More than twice as many Visa cardholders than MasterCard use debit on a monthly basis
  • Table 5-5 Debit Card Monthly Usage Rates by Selected Demographic Characteristics, MasterCard vs. Visa, 2007 (U.S. adults)
  • Debit usage by 25-44 year olds as much as 73% more than average
  • Table 5-6 Debit Card Monthly Usage Indices by Selected Demographic Characteristics, MasterCard vs. Visa, 2007 (U.S. adults)
  
  
• Usage of Debit Cards for Specific Purchases and Purposes
  • Debit increasingly used for everyday purchases, bills, gifts
  • Table 5-7 Payment Options Used, by Type of Purchase: September 2003, 2005, and 2007 (percent)
  • Figure 5-4 Payment Options Used, by Type of Purchase, September 2007 (percent)
  • Demographics of debit card use remain remarkably consistent, regardless of purchase type
  • Figure 5-5 Use of Debit Cards, by Type of Purchase: March 2008 (percent)
  • Table 5-8 Debit Card Purchases: Beauty Care/Cosmetics, Clothing/Accessories, Dining Out, and Electronics, by Selected Demographic Characteristics, March 2008 (U.S. adults)
  • Table 5-9 Debit Card Purchases: Furniture/Appliances, Gasoline, Groceries, and Home Improvement Items, by Selected Demographic Characteristics, March 2008 (U.S. adults)
  • Table 5-10 Debit Card Purchases: Jewelry/Watches, Medicines/Vitamins/Supplements, Tires/Batteries/Auto Repair, and Travel by Selected Demographic Characteristics, March 2008 (U.S. adults)
  • For gifts, younger consumers prefer to use debit but wealthier prefer credit
  • Table 5-11 Demographic Characteristics of Gift Purchasers by Payment Method: Debit Card, Cash, Check, Credit Card, December 2007 (percent)
  
  
• Debit Card Owners’ Opinions and Self-assessments Regarding Financial Matters
  • Debit cardholders no more or less inclined than average to pay cash for purchases
  • Table 5-12 Indices by Debit Card Classification for Agreement with Statement: "I often prefer to pay cash for things I buy," 2007 (U.S. adults)
  • High debit card usage correlates with lack of saving savvy
  • Table 5-13 Indices by Debit Card Classification for Agreement with Statement: "I’m no good at saving money," 2007 (U.S. adults)
  • Inclination to teach kids to be careful with money is average
  • Table 5-14 Indices by Debit Card Classification for Agreement with Statement: "I teach my kids to be careful with money," 2007 (U.S. adults)
  • Heavy users of MasterCard debit say they spend money without thinking
  • Table 5-15 Indices by Debit Card Classification for Agreement with Statement: "I tend to spend money without thinking," 2007 (U.S. adults)
  • Nobody likes to be in debt
  • Table 5-16 Indices by Debit Card Classification for Agreement with Statement: "I don’t like the idea of being in debt," 2007 (U.S. adults)
  • Debit cardholders’ concern about identity theft is about average
  • Table 5-17 Indices by Debit Card Classification for Agreement with Statement: "I am concerned about credit card identity theft," 2007 (U.S. adults)
  
  
• Relationship Between Debit Card and Credit Card Ownership
  • Six in 10 debit card owners used a credit card in the last month
  • Table 5-18 Credit Card Ownership and Usage Rates by Debit Card Owners, 2007 (U.S. adults)
  • Table 5-19 Credit Card Ownership and Usage Indices by Debit Card Owners, 2007 (U.S. adults)

Chapter 6 Outlook

• Introduction
• Micropayment regulation hasn’t benefited vending operators yet
• Cashless society takes to the skies...
• ...and to the rails
• PINless debit for micropayments
• Contactless paving the way for mobile?
• PULSE invests in automatic bill payment opportunities

Appendix Addresses of Selected Marketers