MADISON, Wis. (8/24/12)--Debit card use continues to explode, even amid a turbulent regulatory environment, based on the results of a new study, which includes credit unions.
Financial institutions participating in the 2012 Debit Issuer Study expect 15% growth for PIN debit and an 8% increase in signature transactions this year, according to the 2012 Debit Issuer Study, commissioned by PULSE.
Fifty-seven financial institutions took part in the study--including credit unions, large banks and community banks.
Seventy-six percent of consumers now have debit cards, compared with 73% in 2010. The average active consumer debit cardholder spent $8,326 on the card in 2011, up from $7,781 in the prior year. The increase was driven by more card usage---active users performed an average of 18.3 purchases a month compared with 16.3 a month in 2010.
Much of the growth is driven by an increase in small transactions. While the average price on a debit transaction is $38, the median is just $19, with more than 30% of transactions now less than $10, said the study.
Consumer volume grew by 11% for signature transactions and 9% for PIN transactions, surpassing issuers' expectations of 7% growth in both categories, the study found.
Sixty-nine percent of regulated issuers and 76% of exempt financial institutions surveyed agreed that focusing on improving penetration, activation and usage for debit cardholders is key to growth in 2012.
The Federal Reserve's Regulation II capped the maximum interchange fees that financial institutions with at least $10 billion in assets could receive on debit card transactions. Regulation II includes a cap on debit interchange rates and a prohibition on debit network exclusivity.
The interchange cap went into effect Oct. 11, and applies to issuers with at least $10 billion in assets. These large debit issuers are limited to 21 cents plus 0.05% interchange fee per transaction, in addition to one cent when these issuers qualify for the fraud-prevention adjustment.
The Credit Union National Association (CUNA) last year urged the Fed to allow debit card issuers to charge four to five cents per transaction to cover fraud prevention costs. That adjustment would better cover costs incurred when financial institutions investigate the source of a data breach or theft, attempt to stop any instances of fraud, and deal with the aftermath of the theft or data breach, CUNA said. The increased fraud prevention adjustment also would help protect smaller issuers whose fraud prevention costs often represent a larger portion of their total debt card program costs, CUNA added.
CUNA also recommended that the Fed periodically revisit the fraud prevention cost issue to see if the costs have changed and whether any future adjustments are necessary.