2010 Debit Issuer Study Indicates Financial Institutions Are Employing New Tactics to Increase Debit Card Use

Additional findings from the 2010 Debit Issuer Study, commissioned by PULSE, reveal new tactics financial institutions are using to encourage greater use of debit cards.

According to the fifth-annual study, 72 percent of issuers view improving the performance of their debit portfolios by increasing penetration, activation and usage as a top priority this year. One of the key tactics issuers are using to accomplish this objective is the deployment of instant issuance technology. With instant issuance, cardholders receive a debit card at the branch as part of the process of opening a demand deposit account, rather than receiving their card in the mail.

In 2009, 35 percent of issuers offered instant issuance in either some or all of their branches, up from 28 percent in 2008. Those institutions considering implementation of instant issuance increased to 36 percent in 2009, from 26 percent a year earlier.

"Although instant issuance can result in higher issuing costs, financial institutions offering instant issuance can benefit from increased profitability, greater customer satisfaction and better security,” said Cindy Ballard, executive vice president of PULSE, which released initial findings from the Debit Issuer Study in June.

In addition to instant issuance, the study found that issuers are adopting a "back-to-basics” approach in response to the recession. Many financial institutions are focused on acquiring new account holders and encouraging current customers to use their cards for small-ticket transactions, such as coffee and quick-service restaurants. Issuers also are exploring several approaches to engage debit cardholders through targeted marketing campaigns, offering incentives and emphasizing the benefits of debit over alternative payment methods.

Expanding Debit to Business Customers

To expand their debit portfolios, the study found that many issuers plan to either introduce a new business debit card program or offer debit products to current business account holders. In support of these efforts, some issuers surveyed plan to conduct direct mail campaigns targeted at small business owners.

"Although 70 percent of financial institutions issue business debit cards, this segment comprises only six percent of the total debit card market,” said Tony Hayes, partner at Oliver Wyman, which conducted the study for PULSE. "Many issuers are recognizing the untapped potential in the business debit market. Some 30 percent of survey participants named business debit as one of their top growth areas this year.”

Enhancing Rewards Programs

The Debit Issuer Study also found that debit card rewards programs are an area of focus for financial institutions this year. The survey showed that 58 percent of financial institutions currently offer a rewards program, up from 53 percent in 2008. Although the number of issuers offering rewards increased, only 17 percent are considering launching a rewards program this year, compared to 24 percent that contemplated initiating a program in 2008.

Even with interest in rewards seemingly waning, 36 percent of issuers identified rewards programs as a growth opportunity in 2010. Some issuers surveyed believe that rewards programs increase overall debit volume, create a competitive differentiation and strengthen relationships with cardholders.

"Uncertainty about the economics of the debit card business post-Regulation E revisions and the Durbin Amendment has increased concerns about the cost and self-sustainability of rewards programs,” said Hayes, "but many issuers are placing more emphasis on checking-account-based and relationship programs that could potentially bring more benefit for issuers beyond just spend associated with debit cards.”

About the Study

The 2010 Debit Issuer Study is the fifth installment in the study series. The series provides an objective fact base on debit card issuer performance and financial institutions’ outlook for the debit card business. Sixty-four financial institutions – including large banks, credit unions and community banks – participated in the 2010 study, which was conducted by Oliver Wyman. Collectively, the participants issue 78.7 million debit cards and operate 42,063 ATMs. The sample is representative of the U.S. debit market in terms of institution type, location and debit network participation.

About PULSE

PULSE, a Discover Financial Services (NYSE: DFS) company, is a leading ATM/debit network, serving more than 4,400 banks, credit unions and savings institutions across the United States. The network links cardholders with ATMs and POS terminals at retail locations nationwide. Through its global ATM network, PULSE provides worldwide cash access for Diners Club and Discover cardholders through hundreds of thousands of ATM locations. The company is also a source of electronic payments research and is committed to providing its participants with education on emerging products, services and trends in the payments industry. For more information, visit www.pulsenetwork.com.