Seeds of Change in Debit The 2016 Debit Issuer Study MEDIA EXHIBITS
Study Overview The Debit Issuer Study is the definitive assessment of U.S. debit market 2016 Debit Issuer Study is the 11th edition of the Study 72 debit card issuers, representing ~153 MM debit cards and ~77,000 ATMs ~48% 1 of industry debit transactions (largest sample in Study s history) Study Scope Debit performance (consumer and business) Rewards Debit economics Networks Fraud EMV Mobile wallets Prepaid cards P2P ATMs 1. Based on reported transactions in the 2016 Debit Issuer Study as a share of total transactions processed by U.S. payment networks in Nilson Report 2
Study Identified Five Macro Debit Trends 1 2 3 4 5 Accelerating EMV Transition Increasing Fraud Emerging Mobile Wallets Converging Debit Transaction Types Continuing Strength of Debit 3
1 Accelerating EMV Transition 4
Accelerating EMV Transition Chip Debit Transactions Still a Small Fraction of Total All debit card transactions Chip debit card transactions 11% 32% 64% 4% 89% Magstripe card transactions at non-chip terminals Chip card transactions at chip-enabled terminals Chip card transactions at non-chip terminals Note: Excludes mobile payments, which are a very small fraction of the total 5 Confidential & Proprietary Do Not Copy or Distribute
% of issuers Accelerating EMV Transition Issuers Ramp up Chip Debit Card Issuance Initiation of chip debit card issuance October 2015 Network liability shift 86% 96% 99% 64% Bars represent quarter when FI began, or plans to begin, EMV debit card issuance 45% 7% 7% 13% 6% 24% 11% 21% 19% 22% 10% 3% 1% Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Quarterly issuance Cumulative issuance 6
% of cards on EMV Accelerating EMV Transition Debit Card Conversion to be 76% Complete by Yearend Cumulative conversion of U.S. debit cards to EMV 1 91% 99.6% 76% 33% 2015 2016 2017 2018 1. Transitions are measured at the end of each year (e.g., 2015 means as of December 31,2015). Projection based on issuers forecasts of the rate of EMV debit card migration, weighted based on issuers card base sizes 7
2 Increasing Fraud 8
Net fraud loss per GDV, bps ($/txn) Net fraud loss per GDV, bps ($/txn) Increasing Fraud Fraud Loss Rates Increased in 2015 No-PIN POS debit net fraud loss rate 1 PIN POS debit net fraud loss rate 10.0 8.0 6.0 4.0 2.0 0.0 ($.022) 6.1 ($.026) 6.7 Large Banks ($.026) ($.023) 6.7 7.1 Credit Unions ($.020) 5.5 ($.031) 8.2 Community Banks +$0.004 increase 6.7 6.1 ($.022) ($.026) Overall 2014 10.0 8.0 6.0 4.0 2.0 0.0 2015 ($.003) 0.8 ($.009) 2.2 Large Banks 1.1 0.5 ($.002) ($.005) Credit Unions ($.001) 0.3 ($.006) 1.8 Community Banks +$0.005 or ~3x increase ($.003) 0.7 ($.008) 2.1 Overall 1. Includes all debit transaction types not authorized with a PIN 9
Increasing Fraud Sources of Debit Card Compromises Are Shifting Percentage of debit fraud losses by point of compromise Many issuers define Other as internet or CNP fraud 5% 4% 16% 20% 15% 16% 2% 3% 8% 4% 7% 4% 7% 4% 4% 6% 18% 17% 16% 30% 20% 20% 5% 11% 11% 12% 7% 1% 2% 33% 49% 36% 33% 57% Large Banks Credit Unions Community Banks Overall (2015) Overall (2014) Mass data breach Skimming Lost/stolen card Family/friends International Cardholder fraud Other 10
3 Emerging Mobile Wallets 11
% of issuers Emerging Mobile Wallets Issuer Adoption of Mobile Payments Surged Issuers with cards eligible to be loaded into mobile wallets 65% 30% Overall (2014) Overall (2015) 12
Emerging Mobile Wallets Mobile Wallet Adoption and Usage Rates Remain Low Total est. mobile wallet debit transactions for January 2016 % of total debit cards enrolled Transactions/ enrolled card/month Est. share of debit transactions 1 3.5% 0.7 ~0.15% 0.2% 1.8 1.7 ~0.02% ~8 million industry-wide monthly debit transactions 2 ~0.02% 0.2% 1. As a proportion of the average monthly total of signature and PIN transactions for both consumer and business, for all issuers (includes those with no mobile wallets) 2. Based on the number of transactions from the 2013 Federal Reserve Payments Study with 2012-2015 growth rates from past Debit Issuer Studies 13
Emerging Mobile Wallets Mobile Payments Experiences Are Mixed Positive Experiences Negative Experiences Issuers Ease of implementation and servicing Difficulties with user authentication and provisioning resulting in high call volumes Cardholders Regular users are impressed with the speed and security of mobile payments Lack of merchant mobile wallet acceptance and an inconsistent customer experience 14
% of issuers Emerging Mobile Wallets Expectations High for Mobile Payments Adoption Issuers views on share of debit transactions that will migrate to mobile over the next five years 21% 21% 28% 12% 16% 33% 14% 13% 27% 30% 39% 46% 2014 Study 2015 Study 2016 Study 0 9.99% 10 14.99% 15 24.99% >25% 15
4 Converging Transaction Types 16
Converging Debit Transaction Types Debit Transaction Types Are Increasingly Difficult to Distinguish Monthly consumer debit transactions per active card by transaction type 22.1 22.1 CP w/ signature Signature Dual-message CP w/o signature CNP dual-message PAVD PIN Singlemessage CP with PIN CP w/o PIN CNP 1 By traditional definition By functional definition Note: CP = card-present, CNP = card-not-present, PAVD = PIN-authenticated Visa Debit 1. Includes PINless bill payment and internet PIN 17
5 Continuing Strength of Debit 18
% transaction growth % transaction growth Continuing Strength of Debit Debit Transaction Growth Exceeded 6% in 2015 Overall consumer dual-message vs. single-message transaction growth 2015 projected 1 vs. actual Projected debit growth in 2016 Overall transaction volume Issuers expected growth for 2015, as reported in the 2015 Debit Issuer Study Issuers actual growth, based on values reported for 2014 and 2015 in this year s Study 9% 8% 7% 7% 6% 6% 5% 5% Projected Dual-message Actual* Single-message Large Banks Credit Unions Community Banks Overall 1. Overall transaction growth was 6.26% Y-o-Y in 2015 19
Continuing Strength of Debit Consumer Debit KPIs Remain Strong Consumer debit Key Performance Indicators 2014 vs. 2015 76% 77% 68% 66% 21.2 22.1 62% 63% $37 $37 $9,739 $9,287 Penetration Active Rate 1 Txns per active card per month Dual-message % of Txns 2 Average Ticket Size 3 Annual spend per active card Measure debit card prevalence and frequency of use; transaction volume is main revenue driver for regulated issuers Measure spend and transaction types, important metrics for exempt issuers 2014 2015 1. Percentage of cards that performed any transaction in the last 30 days 3. Blended average of single-message and dual-message transactions 20
Continuing Strength of Debit Business Debit KPIs Reflect Revenue Opportunity Business debit KPIs 2013 vs. 2015 46% 46% 49% 51% 14.5 15.0 70% 71% $92 $96 $17,002 $15,989 Penetration Active Rate 1 Txns per active card per month Dual-message % of Txns 2 Average Ticket Size 3 Annual spend per active card Measure debit card prevalence and frequency of use; transaction volume is main revenue driver for regulated issuers Measure spend and transaction types, important metrics for exempt issuers 2013 2015 1. Percentage of cards that performed any transaction in the last 30 days 3. Blended average of single-message and dual-message transactions 21
Penetration rate, % Transactions per active card per month Continuing Strength of Debit Best-in-Class Benchmarking Leading performers in penetration and usage far outperform the average 100% 92% 40 82% 31.2 80% 60% 62% 75% Mean: 77% 30 20.0 23.1 40% 20 14.4 Mean: 22.1 20% 10 0% 4 th 3 rd 2 nd 1 st 0 4 th 3 rd 2 nd 1 st 22
Singlemessage Dualmessage Continuing Strength of Debit Regulated vs. Exempt Interchange Differential Debit transaction types Average blended interchange rate for consumer debit 2015, regulated vs. exempt issuers 22.1 $0.39 CP w/ signature CP w/o signature $0.24 CNP PAVD CP with PIN CP w/o PIN CNP 1 By functional definition Regulated Exempt 1. Includes PINless bill payment and Internet PIN debit Note: CP = card-present, CNP = card-not-present, PAVD = PIN-Authenticated Visa Debit Note: Exempt issuers cardholders average more transactions per active card/month, this is reflected in the annual revenue calculation 23
% of issuers % of issuers Continuing Strength of Debit Debit Rewards Program Incidence is Unchanged Rewards program incidence By year Rewards program incidence 2015, regulated vs. exempt 58% 56% 37% 32% 47% 38% 39% 48% 39% 37% 46% 37% 41% 2009 2010 2011 2012 2013 2014 2015 Regulated Exempt 2013 2014 2015 24
Issuers See Person-to-Person Payments as Growth Opportunity % of FIs offering P2P payments in 2015 % making changes to program No 52% Yes 51% Yes 48% % offering P2P payments in 2016 No 50% No 49% Yes 50% Overall 25
Most Issuers View FinTech as Both an Opportunity and Threat Is FinTech an opportunity or a threat? 24% Both Opportunity 7% 51% Threat 18% Not sure 26
% of Issuers Issuers Top Opportunities in 2016 Change in Top Opportunities 2015 2016 1 Improve PAU Mobile wallet 2 Mobile wallet EMV/tokenization 3 EMV/tokenization Improve PAU 48% 53% 35% 38% 35% 24% 6% 26% 10% 21% 13% 6% 6% 12% 13% 3% 12% 3% Mobile wallet EMV/ tokenization Improve PAU Rewards/ loyalty Card control Faster payments Branding/ marketing P2P Instant issuance Regulated Exempt Substantial disparity between regulated exempt 27
% of Issuers And Their Top Challenges for 2016 69% 62% Change in Top Challenges 2015 2016 1 Fraud Fraud 2 Regulation Regulation 3 Maintaining margins Maintaining pace with new technology 41% 35% 31% 5% 9% 27% 19% 16% 16% 19% 13% 14% 9% 5% 3% 8% Fraud Regulation Maintaining pace with new technology Maintaining margins Alternative payment forms Competition from mobile and non-fis Mobile wallet Faster Payments EMV Regulated Exempt Substantial disparity between regulated exempt 28
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