U.S. Market for Debit Cards

 
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Published Jul 1, 2008 | 145 Pages | Pub ID: LA1607847

Special offer: now 20% off original price of $3,300
This 3rd edition of Debit Cards in the U.S. continues the story told in Packaged Facts’ May 2006 analysis of this market. The most notable ongoing feature of this market is its astronomical growth— Packaged Facts estimates that transaction volume doubled between 2003 and 2007, and dollar volume escalated at a compound annual growth rate (CAGR) of 20%.

The battle between issuers and merchants persists over online, or PIN, debit (preferred by merchants) and offline, or signature debit (preferred by issuers), as do the interchange wars. As predicted, rewards programs are driving market growth, debit fraud is on the rise, and younger consumers and prepaid debit are key elements in issuers’ growth strategies.

The market remains dynamic, and much has transpired in the past two years. Most dramatically, Capital One has turned the industry upside-down with its “decoupled debit” program, which enables merchants to issue co-branded cards linked to a customer's current bank account. This has significant advantages for consumers and merchants, but significant disadvantages for banks, who stand to lose interchange revenues. Retailers are also turning to other alternative payment networks to bypass interchange.

Other notable events include the Federal government’s elimination of the receipt requirement for small debit purchases, which is sure to spur activity; advances in the burgeoning micropayments, mobile payments, and PINless debit segments; more targeted rewards programs that distinguish different consumer segments; and the role of biometrics in fraud protection.

Report Methodology
Total volume for the debit market includes purchase volume, payments, volume, and cash transactions as described above. For the purposes of this report, Packaged Facts is concerned almost exclusively with debit transactions that involve a merchant or other third party, including in-store and online purchases as well as utility and other bill payments. Transaction volume is the primary measurement of market size and share, since it generally provides a clue to interchange and other profits reaped by issuers and processors; but because issuers are lobbying consumers to use debit for even tiny purchases, the raw number of debit transactions is also tracked as a secondary signifier of market size and growth. Packaged Facts estimates were derived from a variety of sources, including overall market data and figures for the top debit card issuers, electronic transaction data from the U.S. Federal Reserve, company annual reports and financial statements, interviews with industry analysts, and other trends and figures reported by the trade press.

Packaged Facts’ analysis of consumer behavior and demographics derives from the Simmons Market Research Bureau’s (New York, NY) Spring 2007 adult consumer survey, which is based on approximately 25,000 respondents age 18 or over, and BIGresearch’s (Worthington, OH) Consumer Intentions and Actions data, which are based on online monthly surveys of over 8,000 U.S. adults.

Chapter 1 Executive Summary
  • 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