Debit Cards in the U.S., 4th Edition
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Published May 24, 2012 |
152 Pages |
Pub ID: LA6385017
Special offer: now 20% original price of $4,295
The twin pillars of retail banking revenue—debit interchange and overdraft fees—are under assault. As an integral part of consumer checking accounts, debit card transactions drive interchange revenue and are linked to overdraft fee revenue. On the heels of new check overdraft protection rules, debit interchange has been capped, and electronic debit transactions must now be processed over at least two unaffiliated payment networks. These changes are reshaping the debit card competitive landscape and driving sweeping changes in consumer banking relations, checking account and fee structures, and debit payment network economics.
Packaged Facts’ Debit Cards in the U.S. guides market participants through these changes and their significance to the marketplace: the evolving trends shaping the debit card landscape, marketplace winners and losers (debit card issuers, merchant acquirers, payment networks and card associations), and the impact these trends have on consumers and merchants.
While we expect debit to remain a checking account lynchpin, the bottom line is that the fee structures banks implement will determine not only the strength of debit transaction growth going forward, but also related growth in credit cards and prepaid cards—and could even spur a renaissance in cash and check. This report assesses the strategies financial institutions are employing to recoup debit and overdraft losses, including changes in fee structures, creative overdraft solutions, the fate of debit rewards and merchant-funded reward trends.
Through consumer survey analysis, this report also evaluates the role debit cards play in the use of other payment types, as well as how fee and account changes affect debit card use. This assessment includes trend analysis on lower-income consumers and Generation Y, two groups significantly impacted by the growth of debit and the consequences of regulation.
Additionally, the report’s market size and forecast, estimates of current debit interchange revenue, and analysis of "then and now" debit interchange revenue, are all based on data released by the Federal Reserve just prior to June 2012. This same Federal Reserve data were used to create not only tables, but revenue estimates for small and large banks, as well as PIN/signature.
But the debit card is not merely a payment method but a lynchpin of a wider array of cross-sold banking services. As such, the analysis in this report frames debit card patterns within the wider universe of consumer payment, banking service use, consumer loan product use, and consumer investment.
- Chapter 1: Executive Summary
- Scope and Methodology
- Scope of Report
- Report Methodology
- Market size and forecast
- Consumer survey methodology
- Report Summary
- Debit card payment and transaction volume: market size & forecast
- Despite market upheaval, debit growth assured
- Many arguments in favor of continued growth
- $14 billion in interchange revenue is not small change
- But alternative payments beckon
- Credit cards for the affluent and well qualified
- Prepaid cards for unbanked and underbanked
- Signature v. PIN
- MasterCard PIN volume growth
- Short-term profit advantage among smaller banks
- Exempt banks generate almost 50% of debit interchange
- Outcome to be shaped by debit card usage and adoption cost changes
- Regulatory Analysis and Impact
- Debit interchange final rule in effect
- Network exclusivity prohibition and routing provisions reshape competition
- Consumer Overdraft Protection: Challenges & Strategies
- Revenue estimate
- Revenue drivers
- 90% of NSF fees accrued from customers with 5+ NSF transactions per year
- It ain’t over yet! New overdraft inquiry foretells continued scrutiny
- Debit-Driven Innovations & Strategies
- A lesson learned: don’t add direct debit fee
- Banking distrust among Gen Y, lower-income adults and Hispanics grows
- Lesson still being learned: High-to-low balancing on the ropes
- Negative perception about overdraft penalties remain pervasive
- Creative overdraft solutions: Rewarding profitable behavior
- Creative overdraft solutions: grace period
- Creative banking solution: simplify fee structures; increase transparency
- Checking Account Policy and Fee Analysis: Three Leading Banks
- Bank of America checking account analysis
- eBanking intended to drive down costs
- Not much change in one year
- Tiered account structure rewards customers with deeper banking relationship
- Flexible account thresholds
- Senior checking option
- No debit rewards, but customers can still Keep the Change
- Incremental charges for anything out of the ordinary
- SunTrust checking account analysis
- Fee limits based on transaction volume and size
- ATM fee refunds—if you’ve got the money
- Extended overdraft packs wallop, but the grace period creates wider safety net
- Debit rewards alive and well
- But fine print mitigates consumer awareness
- JPMorgan Chase checking account analysis
- Low opening requirements; tiered platform rewards the affluent
- Student checking positioned to build relationship over time
- Fee differentiator: creative overdraft policy
- Debit Cards in Context: The Consumer Payments Universe
- Payment card adoption rates
- Card and electronic payment adoption declines; cash use rises
- Consumer payment products: debit uptake continues
- Checking account holders exhibit higher usage of card products
- Debit card usage volume influences use of other card types
- Debit Usage Trends
- Rise in debit penetration begins to taper
- Consumer banking backlash?
- Visa/MasterCard debit card use trends: cash, purchase & combination
- Age reveals peak usage
- HH income
- Differences between Visa and MasterCard uptake emerge
- Payment preference, by debit brand/type
- Consumers who prefer to pay with cash see value in using their debit card
- Non-engaged credit card users exhibit dip in debit use
- Debit Card Usage Rationales & Influences
- Convenience and cash wariness fuel debit card use
- Exerting spending control
- Credit qualification issues less relevant
- Rewards on the way out—fast
- High-frequency debit user preferences
- Debit-only users more apt to cite creditworthiness
- Debit card-credit card users least apt to use debit to control spending
- Generation Y v. Swing Generation
- HH Income differentiators
- Card Association Debit Trends & Strategies
- MasterCard
- MasterCard client wins help set the stage
- Exclusivity death knell helps MasterCard pass 50% threshold
- And exposure on Visa-branded cards
- PIN share jumps
- Going forward: acquirer licensing fee in the works
- Quarterly comparisons: Q1 2011 v. Q1 2012
- Visa
- Visa U.S. debit strategy
- Visa’s Fixed Acquirer Network Fee
- Exclusivity rule takes its toll
- Volume share drop: get used to it
- “We are never going to regain all of the market share . . .”
- Silver lining
- Department of Justice inquiry
- Visa by the numbers: trending debit metrics & ratios
- Q1 2012 tells quite a story
- Debit Card Issuer Case Studies
- Bank of America
- Reg E strategy and impact
- Overdraft strategy and fallout
- eBanking intended to drive down costs
- Quantifying customer base profitability
- Debit purchase volume leader
- Durbin Amendment impact
- $1.7 billion annual debit interchange hit
- But debit volume continues to grow, surpassing credit card volume by 30%
- JP Morgan Chase
- CARD Act takes a bite
- But the card segment is humming
- Merchant acquiring business is booming
- Debit-driven trends, consequences & strategies
- Debit does not exist in a vacuum
- If you’re not going to generate revenue for us, don’t expect a free ride
- We believe this sets the stage for Chase Liquid prepaid
- Changing banking economics necessitate a shift in strategy
- Checking accounts and debit transactions climb; revenue does not
- Threshold for profitability: $100,000 in deposits & investments?
- Chapter 2: Introduction and Overview
- Introduction
- A simple transaction triggers a Byzantine process
- Industry Structure: Participants and Processes
- Card association
- Demand deposit account (DDA)
- Card issuer
- Electronic Funds Transfer (EFT)
- 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)
- Chapter 3: Market Size and Forecast
- Debit card payment and transaction volume: market size & forecast
- Table 3-1: U.S. Debit Card Market Size and Forecast: 2006-2014
- Payment volume growth
- Graph 3-1: U.S. Debit Card Payment Volume: Market Size and Forecast: 2006-2014
- Transaction volume growth
- Graph 3-2: U.S. Debit Card Transaction Volume: Market Size and Forecast: 2006-2014
- Despite market upheaval, debit growth assured
- Many arguments in favor of continued growth
- $14 billion in interchange revenue still not small change
- But alternative payments beckon
- Credit cards for the affluent and well qualified
- Table 3-2: Card Issuer Quarterly Credit Card & Debit Card Purchase & Acquiring Volume Growth Trends: 2010-2012
- Prepaid cards for unbanked and underbanked
- Signature v. PIN
- Table 3-3: U.S. Debit Card Payment and Transaction Volume: PIN v. Signature, 2011
- Difference between PIN and signature debit interchange evaporates
- Table 3-4: U.S. Debit Card Payment and Transaction Volume: PIN v. Signature, 2011
- PIN gaining quickly on signature
- Table 3-5: Monthly Dollar Volume Growth: Check, PIN Debit and Signature Debit: January 2011 - March 2012
- MasterCard PIN volume growth
- Short-term profit advantage among smaller banks
- Exempt banks generate almost 50% of debit interchange
- Table 3-6: U.S. Debit Card Interchange Revenue: Exempt v. Non-Exempt Debit Issuers, 2011
- Outcome to be shaped by debit card usage and adoption cost changes
- Consumers may migrate to alternative payments if cost of debit card use rises
- Usage cost v. adoption cost
- Assessment of cost helps understand Durbin effect
- Lower-income users more adversely affected
- Debit usage cost increases to drive cash and check resurgence
- Credit cards a more important long-run substitute
- Debit adoption cost increases also tilt more heavily to paper payments
- Chapter 4: Regulatory Analysis and Impact
- Introduction
- The Durbin Amendment: Challenges and Strategies
- The Durbin Amendment & Debit Interchange
- Final rule in effect
- Network exclusivity prohibition and routing provisions reshape competition
- Woe to debit interchange!
- Debit interchange loss analysis
- Bureau of Consumer Financial Protection
- What is it and what is it supposed to do?
- What is the scope of its authority?
- Broad rule-making authority
- Broad enforcement authority
- Consumer Overdraft Protection: Challenges & Strategies
- The Key Provision: Regulation E
- What is it?
- Amendments and their effect
- Revenue estimate
- Earnings estimates
- Revenue drivers
- 90% of NSF fees accrued from customers with 5+ NSF transactions per year
- Regulatory onus
- Steering high-frequency overdraft users
- It ain’t over yet! New overdraft inquiry foretells continued scrutiny
- Fees too high?
- Billions at risk
- Chapter 5: Debit-Driven Innovations & Strategies
- Introduction and summary analysis
- A lesson learned: don’t add direct debit fee
- Bank Transfer Day
- Banking distrust among Gen Y, lower-income adults and Hispanics grows
- Table 5-1: Consumer Trust in Giving Money to Banks among Younger Adults, Low-Income Adults and Hispanics, 2008-2011
- Lesson learned: High-to-low balancing on the ropes
- Flashback: Wells Fargo litigation sets precedent for additional litigation
- For how much could the industry be on the hook?
- The details: High-to-low posting under legal fire
- Commingling and deployment of the shadow line
- Legal conclusion: gouging & profiteering drove overdraft program changes
- Fast forward: Citizens Bank
- Negative perception about overdraft penalties remain pervasive
- Most overdrafts not covered by transfers; overdrafts spur account closings
- Decline my transaction, please!
- Table 5-2: Consumer Attitudes Toward Overdraft Protection, 2012
- Age and income correlate to incurring overdraft fees
- Creative solutions
- Peoples Bank rolls out checking products that boost service charge income
- Assessing unprofitable accounts
- Rewarding profitable behavior
- Assessing by financial behavior and demographic
- Customer analysis followed by conversion notice
- Huntington Bancshares rolls out creative overdraft solutions
- Free stuff and grace periods
- Bottom line grows
- Simplify fee structures; increase transparency
- TD Bank introduces simpler fee disclosures
- Other solutions
- Wells Fargo fee increases
- Citizens Bank boosts checking fees
- Checking Account Policy and Fee Analysis: Three Leading Banks
- Bank of America checking account analysis: Q1 2011 v. Q1 2012
- eBanking intended to drive down costs
- Not much change in one year
- Tiered account structure rewards customers with deeper banking relationship
- Flexible account thresholds
- Senior checking option
- Names change; structure stays the same
- But service charge and daily balance changes noted
- No debit rewards, but customers can still Keep the Change
- Incremental charges for anything out of the ordinary
- Table 5-3: Bank of America Checking Account Features and Fees, by Account, May 2012
- SunTrust checking account analysis
- Debit rewards holdout balances perks with fees
- Fee limits based on transaction volume and size
- ATM fee refunds—if you’ve got the money
- Extended overdraft packs wallop, but the grace period creates wider safety net
- Debit rewards alive and well
- PIN and signature debit transactions welcome
- But fine print mitigates consumer awareness
- Table 5-4: SunTrust Checking Account Features and Fees, by Account, May 2012
- JPMorgan Chase checking account analysis
- Low opening requirements; tiered platform rewards the affluent
- Student checking positioned to build relationship over time
- Fee differentiator: creative overdraft policy
- Table 5-5: JPMorgan Chase Checking Account Features and Fees, by Account, May 2012
- Chapter 6: Debit Cards in Context: The Consumer Payments Universe
- Introduction and summary analysis
- Payment card adoption rates
- Card and electronic payment adoption declines; cash use rises
- Consumer payment products: debit uptake continues
- Checking account holders exhibit higher usage of card products
- Debit card usage volume influences use of other card types
- Perspective on the consumer payments universe
- Payment cards still rule
- Penetration gap between debit and credit widens
- For credit cards, rewards still a force
- Contactless payments
- Table 6-1: Current Adoption of Payment Instruments, by Instrument Features, 2008-2009
- Other trends
- Small business debit use reaches majority status
- Small ticket purchases now more expensive
- Credit card share of wallet three times that of debit
- Debit wallet footprint underscores importance as relationship touch point
- Table 6-2: Number of Adopted Bank Accounts and Payment Cards, 2008-2009
- Usage of paper instruments remains universal
- And gain traction while card and electronic payment penetration falls
- Table 6-3: Incidence Use of Payment Instruments in a Typical Month, by Type of Instrument, 2008-2009
- Card payment share falls below 50%
- But cash and check gain share!
- Uptick in use of cash continues past the financial crisis
- Electronic payment share remains low
- Table 6-4: Usage Frequency and Share of Payment Instruments in a Typical Month, by Type of Instrument, 2008-2009
- Consumer payment products: debit uptake continues
- After dropping during recession, credit card use stabilizes
- More than 1 in 10 adults use a prepaid card
- Table 6-5: Consumer Payment Products Usage, by Type, 2007-2011
- Checking account holders exhibit higher usage of card products
- Credit card penetration remains higher than debit
- Table 6-6: Consumer Payment Products Usage, by Type: Checking Account Holders, 2007-2011
- Consumer banking product usage trends a mixed bag
- Table 6-7: Consumer Banking Products Usage, by Type, 2007-2011
- Consumer loans in decline
- Table 6-8: Consumer Loan Products, by Type, 2007-2011
- Consumer investment ownership also falls
- Table 6-9: Consumer Investments, by Type, 2007-2011
- Checking account holders w/ debit cards also less apt to have investments
- Table 6-10: Consumer Investments, by Type, Checking Account Holders with Debit/ATM Card, 2007-2011
- Credit card usage and engagement
- Table 6-11: Credit Card Engagement, 2007-2011
- Card and online payments increase bill payment share
- Table 6-12: Bill Payment Methods, 2008-2011
- Debit card usage volume influences use of other card types
- Table 6-13: Card Engagement, by Card Type: All Adults, Engaged Debit Card Users & High-Frequency Debit Card Users, 2012
- Card usage among high-frequency debit users
- Table 6-14: High-Frequency Card Use, by Card Type: All Adults, Engaged Debit Card Users & High-Frequency Debit Card Users, 2012
- Chapter 7: Debit Usage Trends
- Introduction and summary analysis
- Rise in debit penetration begins to taper
- Visa/MasterCard debit card use trends: cash, purchase & combination
- Age reveals peak usage
- HH income
- Differences between Visa and MasterCard uptake emerge
- Payment preference, by debit brand/type
- Consumers who prefer to pay with cash see value in using their debit card
- Non-engaged credit card users exhibit dip in debit use
- Rise in debit penetration begins to taper
- Consumer banking backlash?
- Table 7-1: Debit Card Usage, by Brand, 2007-2011
- Visa/MasterCard debit card use trends: cash, purchase & combination
- Table 7-2: Debit Card Engagement, Visa/MasterCard Branded Cards, 2010-2011
- Visa debit card use trends: cash, purchase & combination
- Table 7-3: Debit Card Engagement, Visa Branded Cards, 2010-2011
- MasterCard debit card use trends: cash, purchase & combination
- Table 7-4: Debit Card Engagement, MasterCard Branded Cards, 2010-2011
- Non-Branded Debit/ATM
- Table 7-5: Debit Card Engagement, Non-Visa/MasterCard Debit/ATM Cards, 2010-2011
- Demographic analysis: Visa/MasterCard debit card use trends
- Age reveals peak usage
- But don’t let low penetration among Debit Generation fool you
- Table 7-6: Debit Card Engagement, by Brand/Type: Age Analysis, 2011
- HH income
- Differences between Visa and MasterCard uptake emerge
- Table 7-7: Debit Card Engagement, by Brand/Type: HH Income Analysis, 2011
- Race/ethnicity
- Table 7-8: Debit Card Engagement, by Brand/Type: Race/Ethnicity Analysis, 2011
- Payment preference, by debit brand/type
- Consumers who prefer to pay with cash see value using their debit card
- Table 7-9: Debit Card Engagement, by Brand/Type: Cash/Check Payment Preference Analysis, 2011
- Non-engaged credit card users exhibit dip in debit use
- Financial security and fiscal responsibility self-perceptions
- Table 7-10: Debit Card Engagement, by Brand/Type: Financially Secure & Non-Engaged Credit Card Users, 2011
- Chapter 8: Debit Card Usage Rationales & Influences
- Introduction and summary analysis
- Convenience and cash wariness fuel debit card use
- Exerting spending control
- Credit qualification issues less relevant
- Rewards on the way out—fast
- High-frequency debit user preferences
- Debit-only users more apt to cite creditworthiness
- Debit card-credit card users least apt to use debit to
- control spending
- HH Income differentiators
- Debit card usage rationales, account changes and credit worthiness
- Convenience and cash wariness fuel debit card use
- Exerting spending control
- Credit qualification issues less relevant
- Rewards on the way out—fast
- Table 8-1 Engaged Debit Card Users: Debit Usage Rationales, Account/Fee Changes & Credit Worthiness, 2012
- High-frequency debit users more apt to value cashless convenience and spending control
- Debit-only users more apt to cite creditworthiness
- Debit card-credit card users least apt to use debit to control spending
- Table 8-2 Debit Usage Rationales, Account/Fee Changes & Credit Worthiness, by Debit Card & Credit Card Usage, 2012
- Demographic analysis: debit card usage rationales
- Generation Y
- Swing
- Table 8-3 Debit Usage Rationales, Account/Fee Changes & Credit Worthiness, by Generation, 2012
- HH Income influences creditworthiness-driven debit use
- Service fee increases noted among lower-income debit card users
- Priming the pump for prepaid cards
- Table 8-4 Debit Usage Rationales, Account/Fee Changes & Credit Worthiness, by HH Income, 2012
- Race/ethnicity
- Table 8-5 Debit Usage Rationales, Account/Fee Changes & Credit Worthiness, by Race/Ethnicity, 2012
- Chapter 9: Card Association Debit Trends & Strategies
- Introduction
- MasterCard
- Overview
- MasterCard moves
- MasterCard client wins help set the stage
- But Q1 2012 marks a new era at MasterCard
- Exclusivity death knell helps MasterCard pass 50% threshold
- And exposure on Visa-branded cards
- PIN share jumps
- Process transactions jump
- Going forward: acquirer licensing fee in the works
- MasterCard by the numbers: trending debit metrics & ratios
- Quarterly comparisons
- Table 9-1: MasterCard U.S. Q1 2010, Q1 2011 and Q1 2012 Debit Card Metrics
- Annual trends
- Table 9-2: MasterCard U.S. Debit Card Metrics: 2010 v. 2011
- Visa
- Business summary
- Transaction processing services
- Core debit processing services
- Consumer debit platforms
- U.S. debit strategy
- Recent Visa moves
- Visa’s Fixed Acquirer Network Fee
- Raising “no signature” limit
- Streamlining dispute resolution process
- Exclusivity rule takes its toll
- Volume share drop: get used to it
- “We are never going to regain all of the market share . . .”
- Silver lining
- Department of Justice inquiry
- Visa by the numbers: trending debit metrics & ratios
- Q1 2012 tells quite a story
- Two-year quarterly trend analysis
- Table 9-3: Visa U.S. Q1 2010, Q1 2011 and Q1 2012 Debit Card Metrics
- Discover Financial Services
- Chapter 10: Debit Card Issuer Case Studies
- Bank of America
- Company Overview
- Segment overview
- Deposits segment
- Reg E strategy and impact
- Overdraft strategy and fallout
- eBanking intended to drive down costs
- New fee for monthly statement
- Looking ahead
- Deposits segment strategy & performance analysis
- Banking center reductions and consolidations
- Quantifying customer base profitability
- Building relationships with preferred and small business customers
- Account closings
- Table 10-1: Bank of America, Deposits Segment Business Metrics: Q4 2010-Q4 2011
- Card Services segment
- Credit cards up
- Card Services segment strategy & performance analysis
- 2011 and Q1 2012
- Debit purchase volume leader
- Durbin Amendment impact
- $1.7 billion annual debit interchange hit
- But debit volume continues to grow, surpassing credit card volume by 30%
- Table 10-2: Bank of America, Card Services Segment Business Metrics: Q4 2010-Q1 2012
- JPMorgan Chase & Co.
- Introduction
- Business segments
- Retail Financial Services
- Consumer & Business Banking
- Growing branches, online, mobile and next-generation ATMs
- Enhancing service and increasing sales opportunities
- New technologies
- Card Services & Auto
- Instantly issued cards on the way
- Credit card program hums along
- CARD Act takes a bite
- But the card segment is humming
- New cards; new partners
- Merchant acquiring business is booming
- Debit-Driven Trends, Consequences & Strategies
- Debit does not exist in a vacuum
- If you’re not going to generate revenue for us, don’t expect a free ride
- We believe this sets the stage for Chase Liquid prepaid
- Table 10-3: JPMorgan Chase: Banking Services That Do Not Carry an “Explicit” Charge, 2012
- Changing banking economics necessitate a shift in strategy
- Checking accounts and debit transactions climb; revenue does not
- Table 10-4: JPMorgan Chase Consumer & Business Banking Revenue Growth Trends, 2005-2011
- Proportionally less revenue generated by those with less at the bank
- Table 10-5: Percent reduction in per HH variable contribution by segment, 2011
- Threshold for profitability: $100,000 in deposits & investments?
- Table 10-6: JPMorgan Chase Post-Regulation Revenue Composition by Wealth Segment
- More wealth, more revenue
- Table 10-7: JPMorgan Chase Distribution of households by wealth segment
- Because the relationship is deeper
- Table 10-8: JPMorgan Chase Products per household by wealth segment (industry)
- Chase by the numbers: Q1 2012 post-Durbin analysis
- Table 10-9: JPMorgan Chase Consumer & Business Banking, Card Services & Merchant Services: Quarterly Metrics, 2011-2012
- Chase by the numbers: consumers and business banking
- Deposits and accounts on the upswing
- More human capital for relationship banking and sales opportunities
- Table 10-10: JPMorgan Chase Consumer & Business Banking: Deposit and Retail Branch Metrics, 2009-2011
- Chase by the numbers: Card Services and Merchant Services
- Strong sales volume; aggressive account management
- Healthy bank card volume
- Table 10-11: JPMorgan Chase Card Services and Merchant Services Metrics, 2009-2011
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