Debit Cards in the U.S., 5th Edition

Published: January 23, 2014 - 154 Pages

Table of Contents

  • Executive Summary
    • Report Scope
    • Report Summary
      • Market size and forecast
      • Regulatory analysis and impact
      • Debit-driven trends, innovations & strategies
      • Debit cards in context: the consumer payments universe
      • Debit card usage trends
      • Debit card usage rationales & influences
      • Card association debit trends & strategies
  • Introduction and Overview
    • Placing the debit card within context of consumer payments universe
      • Debit card defined
      • A simple transaction triggers a Byzantine process
      • Industry Structure: Participants and Processes
      • Demand deposit account (DDA)
      • Card issuer
      • Electronic Funds Transfer (EFT)
      • Merchant acquirer
      • Fees
      • Signature-based (offline) transactions
        • Table Path of a Typical Signature-Based Debit Card Transaction
      • PIN-based (online) transactions
      • Automated Clearing House (ACH)
  • Market Size and Forecast
    • Debit card payment and transaction volume: market size & forecast
      • Payment volume growth
      • Transaction volume growth
    • Growing share of card-based payments
      • Table U.S. Credit Card, Debit Card & Prepaid Card Transaction Value, Transaction Volume & Average Value, with Share Change: 2003-2012
      • Non-exempt issuers have two-thirds market share
      • Signature debit vs. PIN debit
        • Table U.S. Debit Card Value and Volume: Exempt vs. Non-Exempt Banks, Signature Debit vs. PIN Debit, 2012
      • Interchange declines in 2012, but could pass 2011 high water mark by 2015
        • Table U.S. Debit Card Interchange: Exempt Issuers vs. Non-Exempt Issuers, with Signature Debit & PIN Debit Share, 2012
    • Growth drivers and challenges
      • Cash and check opportunity translates to continued growth
      • Many arguments in favor of continued growth
      • Credit cards for the affluent, well qualified & (hopefully) a resurgent middle class
      • Prepaid cards for historically underserved and youth
      • Signature v. PIN
  • Regulatory Analysis and Impact
    • The Durbin Amendment & Debit Interchange
      • In a nutshell: what is it?
      • What does it mean for the payments industry?
      • Debit savings for retailers—but not for all of them
      • Network non-exclusivity: it's about freedom of choice
      • Merchant price steering: theory versus reality
    • Courtroom litigation could change the landscape
      • Court decision striking down debit interchange
      • What exactly did the judge say?
      • Potential fallout
        • Table Banking Associations' Suggested Debit Card Cost Data, December 2013
    • 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
  • Debit-Driven Trends, Innovations & Strategies
    • Safety and security
      • The Target breach
      • Banking distrust
        • Table Consumer Trust in Giving Money to Banks, 2008-2013
        • Table Consumer Trust in Giving Money to Banks, by Demographic, 2013
    • Revenue generation practices
      • It's a free country, but checking is conditional
      • Exempt versus non-exempt
      • Conditional free checking
    • Overdrafts
      • CFPB weighs in
      • What does this foretell?
      • Echoes of the past
      • Congress weighs in
      • Creative solutions
    • And related checking matters
      • High-to-low balancing still playing itself out
      • Thinking twice about writing that check
      • Migrating to online solutions
      • Shrinking the branch
      • Remote deposit capture as overdraft stopper
    • Transparency and simplicity
      • Product streamlining
      • Checking account fee transparency improving
      • FDIC Model Safe Accounts
        • Table FDIC Model Safe Accounts: Core Features/Fees & Auxiliary Services and Fees, 2013
      • In practice: Citi Access Account
      • In practice: KeyBank Access Account
        • Table KeyBank Access Account: Web Marketing Graphic, 2013
        • Table KeyBank Access Account: Characteristics & Metrics, 2013
    • Other debit matters
      • Rewards are not dead, they're just different
      • ACH debit in the wings
      • Debitless ATM
  • Debit Cards in Context: The Consumer Payments Universe
    • Summary analysis
      • 2008-2013 debit card, credit card and prepaid card usage trends
      • 2008-2013 checking, investment and loan product trends
      • Debit card and credit card engagement
      • Bill payment method trends
      • Bill payment: payment instrument choice trends
    • Consumer payment products: debit uptake continues
      • After recession dip, credit card use increases, but penetration lags pre-recession levels
      • Prepaid card usage growth lower than that of debit
        • Table Consumer Payment Products Usage Penetration (Percentage and Population), by Type, 2008-2013
      • Debit card engagement at all-time high
      • Debit and prepaid not (yet) likely to coexist in the wallet
      • But majority of prepaid users have debit or credit cards
        • Table Debit Card and Prepaid Card Users, Segmented According to Whether User Has Prepaid, Debit or Credit Card, 2010-2013
      • Debit cards the most prevalent card-based payment method
      • Debit card usage frequency eclipses credit card usage frequency
      • Near-term credit card engagement metrics suggest usage rebound
        • Table Credit Card Monthly Usage Frequency vs. Visa/MasterCard Debit Card Monthly Purchase Frequency, 2010-2013
    • Checking and savings account trends
      • On the decline
      • Checking and savings account usage declines among debit card holders
      • Debit card holders exhibit higher usage of checking and savings account products
        • Table Checking, Savings, and Unbanked: All Adults, Adults w/ Debit/ATM Cards and Adults w/ Branded Debit Cards, 2008-2013
      • Relationship to consumer loan products
        • Table Consumer Loan Products, by Type: All Adults vs. Checking Account Holders, 2008-2013
      • Checking account holders w/ debit cards also less apt to have investments
        • Table Percent of Consumers with Investments: All Adults, Checking Account Holders, Checking Account Holders w/Debit/ATM Cards, 2008-2013
      • 401Ks gain ground; other major types of investments lag
        • Table Checking Account Holders' Investments, by Investment Type, 2008-2013
    • Debit card engagement and effect on credit card use
      • Credit card engagement trends: flat over time
      • Engaged debit card purchasers
      • Strongly engaged debit card purchasers
        • Table Degree of Credit Card Engagement, by Degree of Debit Card Engagement, 2010-2013
      • Degree of debit card engagement: relationship to credit card use, by brand
      • Engaged debit card purchasers
      • Strongly engaged debit card purchasers shift away from AMEX & MasterCard credit cards
      • And prepaid cards
      • More likely to be engaged credit card users
      • Relationship to high-frequency credit card use
        • Table Consumers Who Have Credit Card (by Card Brand), by Degree of Debit Card Engagement, 2010-2013
        • Table Consumers Who Have Used Credit Card in Past 30 Days (by Card Brand), by Degree of Debit Card Engagement, 2010-2013
        • Table Consumers Who Have Used Credit Card 20+ Times in Past 30 Days (by Card Brand), by Degree of Debit Card Engagement, 2010-2013
    • Bill payment method trends
      • Down, goes mail! Up, goes online, automatic debit and phone!
        • Table Bill Payment Methods Used: All Adults, Checking Account Holders, Checking Account Holders w/ ATM/Debit Cards, 2008-2013
      • Tendency to use checks declines but remains prevalent
      • Credit/debit/prepaid bill payment trends
        • Table Bill Payment: Cash, Check, Credit, Debit/Prepaid, Money Order: Degree of Use: All Adults, Checking Account Holders, Checking Account Holders w/ Debit Cards, 2009 vs. 2013
  • Debit Card Usage Trends
    • Summary analysis
      • Debit card usage breadth: 2010-2013
      • Debit card usage frequency: 2010-2013
      • Credit card, debit card, checking and prepaid trends: key demographic groups
    • Debit card usage penetration picks up steam
      • Non-bank threat?
      • Branded momentum
        • Table Debit/ATM Card Usage: Visa, MasterCard & ATM-Only Debit Cards: Cash Withdrawal vs. Purchase, 2008-2013
    • Visa and MasterCard debit card use and engagement trends
      • Engagement rate approaches 90%
      • Branded debit cards gaining usage share
        • Table Debit Card Users & Engaged Users: Visa/MasterCard, Visa & MasterCard, 2010-2013
    • Low-, mid- & high-frequency debit card cash withdrawal & purchase trends
      • Consumer engagement with debit cards has strengthened
      • The purchase side of the equation
      • The cash side of the equation
        • Table Debit Card Engagement: Purchases & Cash Withdrawal Frequency: Visa/MasterCard, Visa, MasterCard and ATM-only Cards, 2010-2013
    • Credit card, debit card, checking and prepaid trends: key demographic groups
      • 18-24s: ominous trends afoot?
      • Harnessing debit to lasso youth?
        • Table 18-24s: Credit Card & Debit Card Engagement, Checking Account Use, and Prepaid Card Use, 2010-2013
      • <$50K HH income: prepaid taking a bite out of checking, but debit remains strong
        • Table <$50K HH Income Adults: Credit Card & Debit Card Engagement, Checking Account Use, and Prepaid Card Use, 2010-2013
      • $100K+ HH income consumers
        • Table $100K+ HH Income Adults: Credit Card & Debit Card Engagement, Checking Account Use, and Prepaid Card Use, 2010-2013
  • Debit Card Usage Rationales & Influences
    • Summary analysis
      • Debit's competitive advantages: Convenience, safety & spending control
      • Views of checking account/debit card holders & higher-frequency debit card users
    • Bank account opening motivators
      • By segmentation group and demographic
    • Account fee reductions influence on opening a checking account
    • Fees to use a debit card
    • Debit vs. other payment types: Convenience, safety, spending control
      • Convenience over cash and checks fuels debit card use
      • Safety also a positive factor—for now
      • Useful tool to control spending
      • Just as good as a credit card?
      • By segmentation group and demographic
        • Table Debit Card vs. Check, Cash & Credit Card: Convenience, Safety, Spending Control: Checking/Debit Card Holders & Non-Holders, High-Frequency Debit Card Users, 2013
        • Table Debit Card vs. Check, Cash & Credit Card: Convenience, Safety, Spending Control: Checking/Debit Card Holders & Non-Holders, High-Frequency Debit Card Users, by Age, 2013
        • Table Debit Card vs. Check, Cash & Credit Card: Convenience, Safety, Spending Control: Checking/Debit Card Holders & Non-Holders, High-Freq. Debit Card Users, by HH Income, 2013
    • Bank account opening motivators
      • Wouldn't we all like to have more money?
      • Less money to open; less money to use
      • Fee and penalty transparency
      • Mobile POS
      • All consumers vs. debit card/checking holders
        • Table Bank Account Opening Motivators: All Consumers vs. Debit Card/Checking Holders, 2013
      • Debit card & checking account holders, by gender and race/ethnicity
        • Table Bank Account Opening Motivators: Debit Card/Checking Holders, by Gender & Race/Ethnicity, 2013
      • Debit card & checking account holders, by age
        • Table Bank Account Opening Motivators: Debit Card/Checking Holders, by Age, 2013
      • Debit card & checking account holders, by HH income
        • Table Bank Account Opening Motivators: Debit Card/Checking Holders, by HH Income, 2013
      • Debit card & checking account holders, by region
        • Table Bank Account Opening Motivators: Debit Card/Checking Holders, by Region, 2013
      • Debit card & checking account holders, by population density
        • Table Bank Account Opening Motivators: Debit Card/Checking Holders, by Population Density, 2013
      • Drawing distinctions between underbanked, unbanked & unbanked AFS users
        • Table Bank Account Opening Motivators: Fully Banked, Banked, Underbanked, Unbanked, Alternative Financial Services (AFS) Users & Unbanked AFS Users, 2013
    • Can account fee reductions influence opening a checking account?
      • Yes, definitely
      • Demographic analysis
        • Table Checking Account Fee Reduction Methods That Influence Account Opening: Influence & Most Important Influence, by Age, 2013
      • HH income
        • Table Checking Account Fee Reduction Methods That Influence Account Opening: Influence & Most Important Influence, by HH Income, 2013
        • Table Checking Account Fee Reduction Methods That Influence & Most Influence Account Opening: by Traditional Banking & Alternative Financial Services Engagement, 2013
    • What about fees to use a debit card?
      • Not as opposed to the idea as you might think
      • By segmentation group and demographic
        • Table Consumers Who Would Pay Banks for Debit Card Fees: Checking Account/Debit Card Holders & Non-Holders, &High-Frequency Debit Card Users, by Fee Type, 2013
  • Card Association Debit Trends & Strategies
    • Discover Financial Services, Inc.
      • Let's start with its bread and butter: credit cards
      • PULSE platform expansion
      • EMV
      • Building significant alternative payments relationships
      • Direct banking
    • MasterCard
      • Overview
      • On the debit side of the business
      • Wins and gains
      • Followed by normalization
    • Visa
      • Overview
      • "We are never going to regain all of the market share . . ."
      • Business summary
    • MasterCard and Visa performance analysis
      • Quarterly trending
      • Tracking Q1 metrics
      • Tracking Q2 metrics
        • Table MasterCard & Visa Debit Volume and Transaction Analysis: Q1 2011, 2012 & 2013
        • Table MasterCard & Visa Debit Volume and Transaction Analysis: Q2 2011, 2012 & 2013
    • MasterCard and Visa debit card usage analysis
      • 2010-2013 usage trending
      • Demographic analysis
        • Table ATM/Debit, MasterCard Debit & Visa Debit, Use, Use in Past 30 Days & Monthly Usage Frequency: 2010-2013
        • Table ATM/Debit, MasterCard Debit & Visa Debit, Use, Use in Past 30 Days & Monthly Usage Frequency, by Gender, 2013
        • Table ATM/Debit, MasterCard Debit & Visa Debit, Use, Use in Past 30 Days & Monthly Usage Frequency, by Age, 2013
        • Table ATM/Debit, MasterCard Debit & Visa Debit, Use, Use in Past 30 Days & Monthly Usage Frequency, by HH Income, 2013
        • Table ATM/Debit, MasterCard Debit & Visa Debit, Use, Use in Past 30 Days & Monthly Usage Frequency, by Race/Ethnicity, 2013
  • Appendix
    • Methodology
      • Consumer survey methodology
    • Terms and definitions
      • Unbanked and underbanked
    • Other terms and definitions

Abstract

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Debit Cards in the U.S., 5th Edition

In the wake of the Great Recession, Congress took steps to significantly reregulate the U.S. payments industry. And years later the industry is still working to fully understand the impact of these new laws and rules.

All forms of payment – including debit cards – were affected. But the debit card interchange has promise, and Packaged Facts projects that it can exceed $20 billion as soon as 2015, supported by moderate volume and transaction growth assured over the next several years. New legal developments may throw through debit cards another curveball, but Packaged Facts expects debit volume and value to grow more than 7% in 2014 and 2015, as the market continues to chip away at the more than $3 trillion of cash and check expenditures that remain ripe for electronic conversion. Traditional banks need to keep strong debit options available to their customers, since they’re losing them to direct banking operations and alternative banking concepts.

Debit Cards in the U.S., 5th Edition gives industry participants needed guidance on trends shaping the U.S. debit card market. The report:
  • Provides a debit card market size and forecast through 2015, with supporting analysis of debit transaction and value growth within the context of card payments; debit transaction and volume by exempt and non-exempt issuers and by PIN versus signature debit network; and debit interchange revenue broken out in the same manner.
  • Reviews regulations affecting debit interchange, debit card routing, and overdraft protection that continue to shape the debit card and consumer banking competitive landscape. We also examine a recent court ruling that could upend the current debit framework, providing explanation and potential outcomes.
  • Assesses issues and trends challenging debit card and consumer banking revenue growth, along with possible solutions. Themes covered included safety and security, checking accounts, overdrafts and hi-to-low-balancing; and simplicity and transparency, with related analysis of checking accounts entering the market.
  • Assesses 2008-2013 debit card, credit card and prepaid card usage trends, including degrees of debit purchase engagement and credit card usage engagement; 2008-2013 checking account trends, including the degree to which checking account holders have investments and loan products over time; 2008-2013 debit card/credit card trends that explore the influence of debit card usage and engagement on credit card use and engagement; and 2008-2013 bill payment methods and payment instrument choices, comparing choices of checking account holders and debit cards holders to the average adult.
  • Assesses 2010-2103 debit card usage and usage frequency trends, by card association brand, as well as credit card, debit card, checking and prepaid trends by key demographic groups: 18-24s, <$50K HH income consumers, and $100K+ HH income consumers.
  • Analyzes Discover, MasterCard and Visa, three industry participants increasingly vying for debit network share. To assess the effects of regulatory change, we assess MasterCard and Visa quarterly debit volume and transition metrics; to assess consumer usage, we use survey data to trend MasterCard and Visa debit usage, purchase frequency, and cash back frequency during 2010-2013; and to provide associated demographic analysis for 2013 Relying on consumer survey data, Packaged Facts assesses various debit card usage rationale and influences, including consumer perceptions about debit convenience and safety in relation to cash and check, as well as spending control; bank account opening motivators, framed around the following themes: account costs, account maintenance thresholds, convenience, transparency and education, mobile capabilities, and prepaid options; checking account fee reduction incentives; and consumer attitudes toward debit card usage fees, pay-per-use fees, and inactivity fees. Most chapter analysis is performed according to a variety of demographics, and filtered by whether or not the respondent has a checking account/debit card.

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