Target Breach Did Not Decrease Debit Card Usage

Target Breach Did Not Decrease Debit Card Usage
Posted: Aug 24, 2016
Categories: Debit Cards, Fraud
Comments: 0
Author: Michele Featherstone

Thoughts on the Good News and Bad News for Credit Unions

When a debit card number is counterfeited, like what happens in a breach of data from a merchant, any counterfeit card number usage results in withdrawals directly from the cardholder’s bank account. Even though the cardholder’s liability for fraudulent transaction is limited - under the FCBA, liability for unauthorized use of the card tops out at $50 and many issuers have a $0 liability for fraud - there also can be additional costs and fees as a result. Checks that bounce result in NSF charges or scheduled bill pays that fail and incur late fees are just some of the aggravations that debit cardholders whose cards were caught in one of the many highly publicized data breaches had to deal with.


The Federal Reserve Bank of Boston was conducting its Survey of Consumer Payment Choice at the same time the Target breach was announced in 2013. Some respondents had answered before the breach was made known to the public, and some respondents were not surveyed until after the breach was made public. Even after accounting for the differences in demographics between early respondents and later respondents, there was a statistically significant difference in the perception of security of debit cards. 37% of pre-breach respondents said that using their debit card was “secure” or “very secure”, but that number dropped significantly, down to 23% for post-breach respondents. Thus, the damage done by the breach definitely had an impact on cardholders’ perception of using their debit cards. A natural conclusion would be that some debit cardholders would switch to using credit cards, and some would switch to cash or checks. But the researchers found no statistically significant changes in how consumers paid, from before the breach compared to after the breach. The full report can be found here. 

So despite the increasing perception that debit is not as safe, debit cardholders continued using debit just as before. How can this be explained?

Response Bias: Some people answer a survey based on perception, current thoughts, or how they believe they should answer. But when faced with a situation in the real world, their actions are based on immediate needs. In other words, people don’t always do what they say they would do. This same phenomena has been seen more recently in the payments space, when asking smartphone users about using a mobile wallet (e.g. Apple Pay or Samsung Pay). A survey that was done before the roll out of Apple Pay stated, “Half of U.S. Consumers Would Use a Mobile Wallet”. But reality proved otherwise. Less than 15% of iPhone 6 users use Apple Pay, despite being available for almost two years now. That number is even lower for Samsung Pay.

Muscle Memory: How a consumer pays for something is a habit that is ingrained early on, and changes very slowly. Check usage at the supermarket is still something seen today, because those check writers have always paid that way. Likewise, debit cardholders who always pay using their debit cards are unlikely to change a long-standing habit even if they hear in the news that 40 million card numbers were compromised. See the article Why shoppers use a debit card at the supermarket for more insight.

Lack of Alternative: There are many debit cardholders who do not carry a credit card. Some do not want a credit card because of fears of getting into debt or just don’t feel comfortable with a credit card. Some do not qualify for a credit card. So switching from debit to credit, while advantageous to the issuer, is not something every debit cardholder is willing to do. And switching to cash means trips to the ATM, and the danger of carrying wads of cash around. Debit cardholders presumably use their card for the convenience of not having to deal with cash or checks. So switching to something “safer” is not an option for some debit cardholders.

Apathy: It is conceivable that despite responding on the survey that they feel that that their debit card is less secure, cardholders still aren’t concerned enough to do something about it.

Summary: The answer lies in some combination of the above reasons. The significance to today’s credit unions is both bad news and good news.

Bad news for credit unions

With the increasing number of mobile wallets (see Walmart Pay joins the list), and soon bank and credit union branded mobile wallets, analysts have predicted that use of wallets will start to take off, based on surveys such as this one. But as the Fed study proves, what cardholders say and what they do can be very different, which does not bode well for positive predictions of use of mobile wallets.

If cardholders are not changing their behavior, they may be opening themselves up for more debit card fraud. Responding to texts alerting cardholders to potential fraud, using Visa Checkout when making purchases online, and taking other precautionary steps can help reduce overall fraud. But if cardholders are slow to change their behaviors, then instead of helping to reduce fraud, they may place blame on their credit union who issued them their debit card, creating a false perception that their credit union should have protected them better.

Good news for credit unions

Despite a Javelin Research study that states 24% of consumers will switch from a bank or credit card issuer that gets breached, this doesn’t seem to be the case, at least not with debit card users. This is good news in that debit cards are the glue that keep members loyal to their credit union checking account.  So, it is good that debit cards are still considered a safe and convenient way to pay. Opportunities lie in member education about how to keep cards safe and when it is better to use a credit card over a debit card.  Generally, cardholders are still using electronic payments and haven’t shifted back to cash and checks due to recent data breaches.  And, there are excellent opportunities for credit unions to look at their debit card accountholders and find opportunities for cross-sell to a credit card as a way to grow your member card portfolio.


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