Debit Card Opportunities and Challenges

2007 Consumer Payments
Preferences and Usage Study:
Debit Card Opportunities and
Challenges
Prepared by:
ESP Payments Practice
May, 2008
(c) 2008 All Rights Reserved

Methodology
Phoenix Marketing International’s ESP Payments Practice completed the
data collection of its annual consumer payments study in June 2007. The
study was conducted online with slightly more than 2000 consumers. The
study is nationally representative of the online U.S. population, controlled
to approximate census counts by age, income, gender, and census
division. Additionally, the population was controlled by credit card
ownership.
The study covered multiple payment areas, but had a strong focus on debit
card issues. This report covers consumer preferences, attitudes, and usage
(both current and future intentions) of debit cards. It also looks at debit’s
relationship to other payment methods, in particular, credit cards.
ESP Payments Practice

Summary and Conclusions
Roughly three­fourths of the U.S. population has a debit card –a
percentage that is stable. Overwhelmingly, these cards are card
association branded. In contrast to credit cards, most consumers typically
have just one debit card, placing it by default at ‘top of wallet’for debit.
The relative stability of consumers’primary bank accounts, with their tie
to debit cards, means that consumers are unlikely to switch debit cards
simply due to a ‘better offer’as some consumers do with credit cards.
Slightly more than one­third of debit cardholders keep larger balances in
their accounts than they would otherwise due to the active use of their
debit cards.
Less than one­third of consumers’primary credit cards are with their
primary bank. As debit card use increases, transactional activity with a
customer’s primary bank increases. Debit activity creates the opportunity
to drive customer wallet share and loyalty.
Debit card usage will continue to experience strong growth. Point­of­sale
transactions will grow, but PIN debit in particular has growth potential at
walkup centers and for recurring bill payments.
ESP Payments Practice

ESP Payments Practice
Debit Card and Credit Card Usage

Debit Card Use Causes Some Consumers to
Maintain Larger Account Balances
• Many consumers hold multiple credit cards. Some of these cards remain inactive, but some consumers
switch between cards for different types of purchases. This is not the case with debit card transactions.
Three­fourths of consumers hold just one debit card, tied to their primary bank account.
• To some extent, debit card usage has replaced check writing. But debit is also replacing other forms of
payment, including cash and credit cards. For this reason, increased debit card transactional activity is
requiring cardholders to hold larger bank account balances to draw upon with debit card usage.
Size of Bank Account Balance Due to Debit Card Use
“Use of my debit card causes me to keep a larger balance in that bank account than I
would otherwise”
Base: Debit Cardholders
35%
23%
All
27%
Income:
>$100k
ESP Payments Practice
Agree
(Keep larger Balance)
Strongly Agree
“Top 2 Box”
(Keep larger Balance)

Shift from Credit to Debit Cards Will Continue
Debit card transaction volumes continue to grow, replacing check and cash usage, and slowing the
growth of credit card transactions. The impact on credit card usage due to debit usage is strong –nearly
half of respondents agree that they will use debit instead of credit over the next three years, double the
percentage that disagree.
The shift to debit card usage is in part accompanied by a decrease in credit card usage for some
consumers. The percentages expecting decreases in both forms of debit is low, and is nearly three times
less than the percentage expecting a decrease in credit card usage.
Intended Use of Debit and Credit Cards
“Over the next three years, I will use my debit card more and my credit card less often.”
45%
22%
ESP Payments Practice
Strongly
Agree
Base: All consumers
Strongly
Disagree

Reasons for Selecting Debit Cards and
Credit Cards Differ
• While consumers often use debit cards as a replacement for their previous use of cash or checks, debit
card use also intersects with their selection of credit cards. Credit cards are often used to buy goods and
services –often higher priced items ­ on credit. Conversely, debit cards are often used to avoid buying
items on credit, as consumers report using debit cards to help control their spending.
Main Reasons For
Using Debit Cards
Main Reasons For
Using Credit Cards
Helps Control
Spending
29%
Rewards/Points
11%
Cash or Check
Replacement
47%
No Other Options
More Convenient/Faster
8%
6%
More Secure
11%
Use For Higher Priced Purchases
17%
Habit
2%
Nearing Credit
Card Account
Limits
3%
Allow To Buy Now and Pay Later
Don't Like To Carry Cash
15%
26%
Other
10%
Other
15%
ESP Payments Practice
Base: Debit Cardholders

ESP Payments Practice
Security Issues with Card Usage

Signature and PIN Security Concerns Are Equal
Card and card number thefts have heightened security concerns with cards, and security concerns are
higher for debit cards than with credit cards. Debit cards tie directly to customers bank accounts and
funds are removed within a few days, versus credit cards, where charges are billed to be paid after
customer review.
Consumers are equally concerned with PIN and signature debit used at retail locations. Less than onethird
say they are not at all concerned with the security on their debit cards.
Attitudes on Security of Debit Card Transactions:
PIN v. Signature
“Using an debit card with a PIN at a
retail location.”
23%
28%
“Using an debit card with a signature (no
PIN) at a retail location.”
22%
30%
ESP Payments Practice
Very
Concerned
Not at all
Concerned
Very
Concerned
Not at all
Concerned

Internet Card Transaction Concerns Remain
High
Nearly one­third of consumers are very concerned with using a debit card for Internet purchasing, and
one­fourth have the same concern with credit card usage. Concerns are heightened by high profile media
reports of store databases being hacked, and by use of stolen credit card numbers for Internet purchases,
even though the card numbers are often stolen in the offline world.
Attitudes on Security of Internet Card Transactions
“Using a credit card at a store on
the Internet.”
26%
26%
“Using a debit card at a store on the
Internet.”
31%
20%
Very
Concerned
ESP Payments Practice
Not at all
Concerned
Very
Concerned
Not at all
Concerned

ESP Payments Practice
Debit Cards and Bill Payment

More Consumers Want to Use Debit Cards
than Credit Cards to Pay Bills
More than one­third of consumers say that they will pay more bills electronically if they could use their
debit cards. Large billers are increasingly accepting both credit and debit cards for payment to respond to
consumer demand, but some billers are reluctant to add what they perceive as higher processing cost
methods.
Some consumers prefer to pay by credit card, often to garner reward benefits. But since consumers have
typically paid bills from their checking accounts, debit cards drawn from the same accounts are less of a
behavior change than is a switch to credit cards. Fifty percent more consumers (36% to 24%) report that
they would increase bill payments with debit cards (over credit cards) if they could.
Attitudes on Card Use for Bill Payment
“I would pay more bills electronically if I
could pay with my debit card.”
36%
20%
“I would pay more bills electronically if I
could pay with my credit card.”
24%
33%
Strongly
Agree
ESP Payments Practice
Strongly
Disagree
Base: All consumers
Strongly
Agree
Strongly
Disagree

Debit Cards Are the Preferred Card Type
For Paying Bills
• With billers increasingly providing the option to pay bills with both credit and debit cards, consumers can
select which card type to use for this purpose. When asked what type of card they would prefer to use if
using a card to make a bill payment, consumers selected debit cards over credit cards by nearly a 5­to­2
ratio.
Preferred Card for Paying Bills
“If I were to use a card to pay a bill, I would prefer to use . . .”
Base: Cardholders (Debit or Credit)
49%
21%
14%
16%
ESP Payments Practice
Debit Card Credit Card No
Preference
Would Not
Use Card To
Pay Bill

Younger, Moderate Income Consumers
Strongly Prefer Debit to Credit for Bill Pay
The preference for debit cards over credit cards to pay bills is strongest among middle aged and lowerincome
consumers. Older consumers, and those with incomes above $100,000 are evenly divided in their
preference among the two card types.
Attitudes on Future Debit versus Credit Card Use for Bill Payment
“I would pay more bills electronically if I could use my debit card.”
44%
36%
“I would pay more bills electronically if I could use my credit card.”
38%
36%
36%
33%
34%
32%
26%
26%
22%
21%
17%
24%
18% 19%
22%
27%
18­24 25­34 35­42 43 ­ 61 62+ $100k

Debit Cards Used for Walkup and
Telephone Bill Payments
ESP Payments Practice

Despite the growth of new payment channels and the movement to electronic payment methods, 25
percent of consumers report having made an in­person payment at a walkup center in the past month.
Checks and Cash Account for Most Walkup
Payments
While people who make walkup payments are often thought to be unbanked, checks are used as often
as cash to make payments at walkup sites.
Among other payment methods, debit cards are used more often than credit cards, by a three­to­one
ratio. PIN debit is used twice as often as is signature debit, reflecting the methods accepted by
providers.
Payment Method Used for Walkup Payments
“Most recent payment”
42% 42%
Cash
ESP Payments Practice
Check
8%
PIN
debit
card
4%
Signature
debit card
3%
Credit
card
2%
Other
Base: Consumers Who Made
Walkup Payment in Past Year

One in Five Consumers Make Telephone Bill
Payments
Consumers continue to make use of the telephone to pay bills. This is often the fastest way to make a
last minute payment to stop a discontinuation of service.
Card payments account for more than one­half of all bill payments made by telephone. Of these card
payments, debit cards account for nearly 80 percent of the total. Cash and paper checks dominate the
walkup center payment environment, but these methods are not accepted by telephone.
Percentage of Consumers Who Make Telephone Payments
Telephone Bill Payment Made in Past Year
Does Not Make
Telephone Bill
Payments
79%
21%
Does Make Telephone
Bill Payments
ESP Payments Practice

STAR ® Bill Payment Service
Melissa Santora
STAR ® Network Product Management
© 2008 First Data Corporation. All Rights Reserved.
This document contains unpublished, confidential
and proprietary information of First Data
Corporation. You may not disclose, copy or use any
part of these materials for any purpose without the
express written consent of First Data Corporation.

What is the STAR ® Bill Payment Service?
Definition
Allows ATM/Debit cardholder to pay bills directly at Bill Payment Merchant
Transactions are processed online, real­time, similar to PIN­ned debit
transaction at POS
Limited to biller categories that fit a specific low­risk model
Payment Channels
Internet
Voice response unit (VRU)
Inbound Call­Center
Auto­recurring payments
Kiosk
Liability
Bill Payment Merchant assumes the transaction liability & is responsible for
authenticating cardholder at time the transaction is initiated
[ 19 ]

Expanded Biller Categories & Payment Channels
Expanded Billers
Rental Payments
Prepaid Wireless
ISPs
Memberships – including health clubs and wholesale clubs
Home Services – such as home security, pest control and water delivery
Additional Lenders
Credit Card Lenders
Major credit cards, private label & proprietary cards
Student Loans
Educational loans pursuant to a federal or state government program
Approved Creditors
Loans issued by financial institutions that extend credit without an interest in property
that secures the credit obligation
Kiosk
Utilizes unattended device
Card swipe approved for PAN entry only
PIN not allowed
[ 20 ]

STAR ® Statistics… behind the scenes of STAR Bill Pay
54% transaction growth YOY FEB 2007/FEB 2008
656 billers participating in STAR Bill Pay (March 2008)
21+ payment processors live with bill payment (March 2008)
2007/2008 Consumer Payments Usage and Segmentation Study
Successfully closed all pilots 2007 – Recurring, Government, Unsecured
Loans
[ 21 ]

Benefits of STAR ® Bill Pay to Billers & Acquirers
Immediate confirmation of good funds
Benefits to Billers & Acquirers
Next­day settlement of funds for approved transaction
Ability to prompt for another form of payment while customer is still present
Possibility to reduce staff costs associated with returned checks or ACH items
Real­time option for automatic recurring payments
Immediacy of real­time provides better customer service
Added payment options may increase overall transaction volume
Low cost payment option
Reduces bust out fraud for credit card payments
[ 22 ]

ATM/Debit Payment Screen Guidelines
4 Developed collaboratively by the STAR ® , NYCE ®
and PULSE ® Networks
4 Created to help consumers better understand
available payment options
−
−
Standardized PIN­less debit terminology for
online payments, i.e. “ATM/Debit”
Developed a recommended transaction flow
for online payments
4 www.star.com/billpayment
[ 23 ]

STAR ® Bill Payment Service Product and Marketing Guide
4 Growth of bill payment
4 Product overview
4 Marketing tools
−
−
Promotional materials & sample copy
Biller/acquirer FAQs
4 Case studies
4 www.star.com/billpayment
[ 24 ]

STAR ® Bill Payment Service Implementation Guide
4 Developed with acquirers & billers in mind
4 Located in the guide you’ll find…
−
−
−
−
−
−
−
−
−
Connectivity options
Industry information on ATM/Debit
Pricing
SIC Code listing
Implementation paperwork requirements
Timelines
Reporting tools
Sales & Marketing support
STAR Bill Payment Service contacts
4 Distributed only with signed STAR NDA
4 www.star.com/billpayment
[ 25 ]

Cherie McDowell
State of Nevada
Department of Motor Vehicles
Management Analyst III
cmcdowell@dmv.state.nv.us

Why did Nevada DMV decide to partner with STAR?
• Give our customers the option of using a debit card on our website
• Reducing DMV office wait times
• Savings in merchant services fees (debit vs. credit)
• Delay the need for additional physical locations

Additional Payment Options Adds Convenience for Customers
• Since 1999, DMV customers have welcomed the ability to conduct
business on our website www.dmvnv.com
• Over time, DMV has added new transaction types and new payment
types
• DMV eagerly accepted STAR’s offer to participate in STAR’s Bill
Payment pilot
• The more payment types we can accept online the more customers
we can keep out of our offices

CY07 DMV Debit Stats
• Our website experienced over 3.1 million “visits”
• Customers conducted over 600,000 monetary transactions, over
$106M
• Almost 73,000 of those transactions were debit: approximately 12%
of the total transactions
• Over $10.3 million in debit transactions

Reducing DMV wait times
• Nevada has been one of the fastest growing states in the nation for
the past two decades
• Alternative services/methods of payment (Mail­in Renewal, Internet
and Kiosks, etc.) allows customers to conduct transactions from
home or using our Kiosks
• Providing alternative services/methods of payment reduces wait
times for our growing customer base
• Current average wait time for our major metropolitan offices is only
44 minutes. “Wait time” starts when a customer gets in the
information desk line and stops when the transaction is complete

Saving Money
• Nevada DMV pays all the fees associated with debit and credit
transactions
• Ultimately, Nevada’s citizens pay these fees through taxes
• On average, a debit card transaction costs NV DMV approximately
$2 less than a credit card transaction

Delay/Prevent Brick and Mortar
• NV DMV hasn’t built any additional facilities since the mid 1990’s
• Providing alternative services/payment methods for our customers
has been key
• Given our current budget situation, this is more important than ever
• Delay/prevention of additional facilities also means delay/prevention
of hiring additional staff and associated costs

Teamwork & Communication
• Complete buy­in from top administration
• Strong project managers from “both sides of the fence”
• Motivation from “both sides of the fence”
• IT staff with knowledge and/or desire to learn
• Staff instruction
• Public notification
• Ongoing compliance and maintenance
• Good working relationship with all parties

DMV Implementation Schedule
• July 2005: E­checks on the Web
• August 2006: Online bill pay (PIN­less debit on the Web)
• August 2007: PIN­less debit for mail­in renewal transactions.
• February 2008: PIN­based debit at all 21 locations
• May 2008 (projected): PIN­less debit and e­checks on the Kiosk