Contactless And Mobile Wallets Are Gaining Ground Among Debit Users, a Pulse Study Finds

Consumer affinity for in-person transactions that reduce points of contact are taking hold as contactless payments made with debit cards swelled to 16% of the U.S. card-present share last year from 8% in 2021.

It’s a similar story with debit cards used with mobile wallets. Their use increased from 5% of the transaction mix to 10% in 2022, according to the 2023 Debit Issuer Study from Pulse, the debit network owned by Discover Financial Services.

The growth in contactless payments made with debit cards came as the share of card-present transactions made with the chip inserted into a point-of-sale terminal dropped to 64%, compared with 71% in 2021. Transactions made with the magnetic stripe were almost flat at 20% in 2022 versus 21% in 2021. In 2022 and 2021, 99.9% of all debit cards in circulation had an EMV chip, with most also having contactless capability.

The increase in debit use in mobile wallets is likely a result of greater consumer awareness and an increase in merchants equipped with wallet-enabled payment terminals, Pulse says. “Nearly 80% of issuers reported witnessing a noticeable uptick in the number of mobile-wallet transactions,” the report says. “In fact, issuers are actively prioritizing efforts to enable and promote mobile-wallet use, aiming to secure the top-of-digital-wallet position.”

While this is positive news for debit card use, there are accompanying concerns, such as fraud, that are garnering issuer attention. When asked about the top trends in debit card use, 90% cited the increased impact of, and rising attention to, fraud as a concern, followed by 78% selecting more use of mobile wallets, and 77% choosing the shift in spend from card present to card-not-present transactions.

Why is fraud such a common concern? “The pandemic, and the resulting shift to card-not-present (CNP) channels, caused a corresponding change in fraudster tactics,” Steve Sievert, Pulse executive vice president of marketing and brand management, says in an email to Digital Transactions News. “Their attacks are more sophisticated and collaborative, and they increasingly use social engineering to obtain data, then attempt to conduct CNP transactions using that data.”

Fraud concerns rank even higher than topics like contactless and digital use of debit, which had been the top focus areas the past two years, Sievert says. “Fraudsters are increasingly targeting higher-value transactions, which consequently leads to higher monetary losses when prevention and recovery efforts are unsuccessful. As a measure of the impact on issuers, the average value of a lost fraud case rose from $107 per transaction in 2021 to $155 in 2022,” he says.

Debit issuers are enlisting a variety of tools, such as machine-learning algorithms, tokenization, and behavioral analytics, to counter fraud.

“They are also making investments in consumer educational materials to increase awareness of fraud schemes and help cardholders recognize and prevent social-engineering fraud tactics; as well as self-service capabilities that will enable customers to activate fraud prevention tools,” Sievert says.

“The challenge for issuers is to minimize fraud losses while simultaneously limiting the impact on the customer experience,” he continues. “It’s easy to tighten fraud controls, but false positives prevent cardholders from conducting legitimate transactions. And both false positives and negative fraud-dispute experiences can leave a lasting impression.”

Other data from this year’s report—the 18^th in the series—shows that active debit cardholders made approximately 29 transactions per month in 2022, consisting of 19.6 card-present purchases, 8.1 online transactions, and 1.4 account-to-account transfers. Of the A2A transfers, 63% were account-funding transactions, used for loading prepaid cards and topping up digital wallets, and 37% were original-credit transactions, often used for direct-deposit payments, gig-economy payments, and government benefits paid to consumers.

The study also revealed the average debit ticket of $48.49 in 2022 is 2.4% higher than in 2021.

The Pulse study comprises data from a range of debit issuers, varied by size, type, location, card brand, and unaffiliated- network participation. The data is not limited to Pulse clients, though approximately two-thirds are in the Pulse network, Sievert says. The survey was conducted anonymously by West Monroe, a Chicago-based digital-services firm. Transaction volume is not disclosed.