Debit Card Transactions Research Articles

Suspicious Behavior Detection in Debit Card Transactions using Data Mining

The approach used in this paper is an implementation of a data mining process against real-life transactions of debit cards with the aim of detecting suspicious behavior. The framework designed for this purpose has been obtained through merging supervised and unsupervised models. First, due to unlabeled data, Twostep and Self-Organizing Map algorithms have been used in clustering the transactions. A C5.0 classification algorithm has been applied to evaluate supervised models and also to detect suspicious behaviors. An innovative plan has been designed to evaluate hybrid models and select the most appropriate model for the solution of the fraud detection problem. The evaluation of the models and the final analysis of the data took place in four stages. The appropriate hybrid model was selected from among 16 models. The results show a high ability of selected model in detecting suspicious behavior in transactions involving debit cards.

The Composition Effect of Consumption around Retirement: Evidence from Singapore

It is well established that consumption is “hump” shaped over an individual's lifecycle, peaking in middle age and then declining in the years that follow. Prior research has documented that consumption declines at retirement, which is inconsistent with the standard lifecycle model with consumption smoothing. Using a unique dataset with detailed administrative records of credit and debit card transactions, we show the hump shaped lifecycle consumption pattern as documented in the literature. Additionally, we show compositional changes in consumption expenditures across individuals in the years surrounding retirement confirming the results of Aguiar and Hurst (2005, 2013).

Does a Public Campaign Influence Debit Card Usage? Evidence from the Netherlands

Do consumers change their payment behaviour after being exposed to a public campaign that encourages them to use their debit cards more often? We analyse the impact of such a campaign that started in 2007, using weekly debit card transaction data between 2005 and 2013. The overall results show positive effects of a national campaign to promote debit card usage, both in the short and in the long run. Debit card usage increased by 2%. The effects are the most significant at the early stages of the campaign, while appearing to wear off after a few years of interventions. The results suggest that high campaign intensity had a positive impact, as did a focus on certain large retail chains.

The Implementation of EMV Chip Card Technology to Improve Cyber Security Accelerates in the U.S. Following Target Corporation's Data Breach

This study explored the adoption of the Europay, Mastercard, and Visa (EMV) standard for authenticating debit and credit card transactions among corporations in the United States, in response to high profile cybercrimes. According to the research, the Target Corporation data breach in 2013 appears to be the event that motivated the technological change. Target Corporation was the victim of cybercrime through a chain of events, several U.S. organizations have suffered severe financial losses due to data breaches, and U.S. technology is vulnerable regarding debit and credit card transaction processing. Further, U.S. organizations other than financial institutions (e.g., banks) do not typically bear the financial burden for fraudulent transactions, and hesitate to invest in costly new security measures, such as machines that accommodate EMV chip cards, which are debit and credit cards with embedded microchips for added security.

SEPA Card Clearing as an open standard for card processing in the euro area

The establishment of the Single Euro Payments Area (SEPA) for credit transfers and direct debits was finalised via Regulation (EU) 260/2012 of the European Parliament and the European Council. But without the card payment sector, the vision of a harmonised single payment market remains incomplete. A harmonised market for cards should provide a framework within which merchants in Europe can accept a variety of SEPA-compliant card brands and products, and choose from a variety of acquirers without being artificially constrained by legal, technical or procedural aspects associated with the respective card schemes. This paper focuses on SEPA Card Clearing (SCC), a project aimed at harmonisation, which is nearing completion in the acquirer-to-issuer domain. The aim of SCC is to create a new common ISO 20022 standard as an open standard (ie irrespective of a specific card scheme) for clearing and processing debit card and credit card based transactions between banks that takes into account the different market needs with respect to clearing and settling debit and credit card transactions, based on existing standards in different countries. Therefore, with SCC, a clear ‘unbundling’ of card schemes and processing can be achieved. This should support open and fair competition and, in so doing, lower the market entry barriers for new players. In technical terms, the SCC Framework is based on the SEPA Direct Debit (SDD) scheme and its concomitant SDD-message standards and business processes. The SCC Framework is freely available for any market participant in Europe, and it enables the use of one clearing infrastructure for all relevant payment instruments in the SEPA, direct debits, credit transfers and cards. Lastly, SCC also supports innovation. The special payment message container in SCC could also be used for the processing of any other type of payments (ie payments via mobile phone or biometric data).

The Costs and Benefits of Half a Loaf: The Economic Effects of Recent Regulation of Debit Card Interchange Fees

This study examines one section of the Dodd-Frank “Wall Street Reform and Consumer Act” directing the Federal Reserve Board to develop new regulations for the “interchange fees” charged by banks that issue debit cards for debit card transactions. On June 29, 2011, the Board issued its final rule, “Regulation II: Debit Card Interchange Fees and Routing,” which became effective on October 1, 2011. The standards set out in Regulation II cap debit card interchange fees at $0.21 per transaction, plus 5 basis points (0.05 percent) of the transaction’s value, plus a $0.01 charge per transaction for debit card issuers that meet certain fraud prevention standards. These standards apply only to transactions with debit cards issued by financial institutions with assets of $10 billion or more, covering about two-thirds of all debit transactions. Our analysis found that the new cap on debit interchange fees reduced the fee on the debit transactions covered by the regulation from an average of $0.51 per transaction (with large variations) to $0.24 (with less variation). This overall reduction saved consumers and merchants an estimated $8.5 billion in 2012; we further estimate that $5.87 billion of those 2012 savings were passed along to consumers in lower prices, while merchants retained $2.64 billion. Moreover, we also estimate that the $8.5 billion in cost savings was sufficient to support 37,501 new jobs. However, the $0.21 fixed fee per transaction under Regulation II raised interchange fees on transactions of $15 or less; and on the average small transaction of $7.50, the fee as a share of the transaction exceeds the profit margins on such transactions for six industries that depend on small purchases (including supermarkets, groceries, convenience stores, gas stations and pharmacies). If Regulation II had not raised interchange fees on small debit transactions, consumers and merchants would have saved an additional $690 million in 2012, which could have supported 3,044 more jobs. The new standards do not affect credit card transactions. Our analysis found that if credit card interchange fees on the two dominant, four-party payment networks, Visa and MasterCard, were capped at the maximum $0.24 per-transaction rate set by Regulation II for covered debit transactions, consumers and merchants would have saved an additional $22.4 billion in 2012. Consumers would have captured $15.4 billion of those benefits, and their additional spending could support 56,733 jobs; while merchants could be expected to retain roughly $6.9 billion of those cost savings, and their additional spending and investments could support another 41,918 jobs.

The Composition Effect of Consumption around Retirement: Evidence from Singapore

It is well established that consumption is “hump” shaped over an individual’s lifecycle, peaking in middle age and then declining in the years that follow. Prior research has documented that consumption declines at retirement, which is inconsistent with the standard lifecycle model with consumption smoothing. Using a unique dataset with detailed administrative records of credit and debit card transactions, we show the hump shaped lifecycle consumption pattern as documented in the literature. Additionally, we show compositional changes in consumption expenditures across individuals in the years surrounding retirement confirming the results of Aguiar and Hurst (2005, 2013).

Checking-Account Fees, Involuntary Account Closure, and Neighborhood Demographics

This paper uses confidential supervisory information for a large random sample of checking accounts at a small number of large banks to examine the costs associated with checking account ownership and the determinants of involuntary account closure. We find that average monthly checking account fees incurred by our sample are around $9, but these fees are very unevenly distributed across account holders. Accounts that were opted in to the standard overdraft coverage of debit-card or ATM transactions tended to have much higher account fees than accounts that were not opted in. Much of the variation in account fees reflects fees associated with having insufficient funds to cover transactions (NSF-related fees). Multivariate tests confirm that account balances and transaction activity explain much of the variation in fees. Controlling for account-related factors, we also find differences in fees that are associated with census-tract characteristics. Our tests indicate that higher account fees or a lack of account activity are important factors associated with a higher likelihood of involuntary account closure. New accounts also have a very high closure risk. However, we again find associations between census-tract characteristics and the likelihood of involuntary account closure. The tract characteristics that are associated with higher account fees or involuntary account closure are similar to the demographic characteristics of households that tend to be unbanked or underbanked. Hence, our findings can help to explain why some households turn to nonbank sources of transaction or liquidity-credit services.

An Integrated Service Model for Improved Automatic Teller Machine Operation in Nigeria Banking System

Nigeria economy until recently depended on cash transactions. By Central Bank of Nigeria (CBN) Act 2007, cashless banking through Automated Teller Machine (ATM) was officially introduced into some segments of Nigeria Banking sector to improve banking operation and bring about fiscal growth of the economy. The cashless programmes launched included ATM, Debit Card and Credit Card transactions. The popularity of transactions through ATM can be ascribed to convenience of use. However, at present in Nigeria, ATM is not satisfying the set objectives in the area of transaction reliability, compliance of process, and transaction response time thereby resulting to ATM fraud and security flaws; delay operations; and erroneous reporting and feedback. To a large extent, these problems can be attributed to defective policy framework and implementation. Therefore, this paper focuses on improving the operation of ATM using the combination of Service Component Architecture (SCA) and Case Based Reasoning (CBR) as a framework for Service Oriented Computing. It describes a new service oriented modeling approach where the SCA is used to facilitate the composition of service within ATM operation while the CBR is used to execute the service functions selected by users. These models are relevant to Commercial Bank and CBN layers of Service Model under the regulation of CBN based on customers’ preferences over customers’ requirements via the ATM and internet banking interface. The model serves as a framework that could guarantee better operation in ATM banking.

Consumer Inattention and Bill-Shock Regulation

For many goods and services such as electricity, health care, cellular phone service, debit-card transactions, or those sold with loyalty discounts, the price of the next unit of service depends on past usage. As a result, consumers who are inattentive to their past usage but are aware of contract terms may remain uncertain about the price of the next unit. I develop a model of inattentive consumption, derive equilibrium pricing when consumers are inattentive, and evaluate bill-shock regulation requiring firms to disclose information that substitutes for attention. When inattentive consumers are sophisticated but heterogeneous in their expected demand, bill-shock regulation reduces social welfare in fairly-competitive markets, which may be the effect of the Federal Communication Commission's recent bill-shock agreement. If some consumers are attentive while others naively fail to anticipate their own inattention, however, then bill-shock regulation increases social welfare and can benefit consumers. Hence, requiring zero-balance alerts in addition to the Federal Reserve's new opt-in rule for debit-card overdraft protection may benefit consumers

ATM withdrawals, debit card transactions at the point of sale and the demand for currency

Debit cards are employed for cash withdrawals at automated teller machines (ATMs) and for purchasing transactions at point-of-sale (POS). In this paper, we explore, for the first time to our knowledge, the determinants of debit card transaction volumes at ATM and POS, the relationship between these two alternative usages of cards and its impact on the demand for currency. We employ a unique database that considers the two-sided nature of debit cards to explore these issues. The results suggest that the intensity of the use of ATMs and POS have a large economic impact one on another. We also find a net negative effect of transactions with debit cards on the demand for currency since the positive impact of ATM usage is lower in absolute terms than the negative effect of POS volumes.

MEASURING SOME EFFECTS OF THE 2011 DEBIT CARD INTERCHANGE FEE REFORM

In October 2011, new rules governing debit card interchange fees became effective in the United States. These rules limit the maximum permissible interchange fee that an issuer can charge merchants for a debit card transaction. Using new data from the Federal Reserve of Boston, Richmond, and San Francisco 2012 Diary of Consumer Payment Choice, this article provides simple calculations that identify the transaction values by consumer expenditure category for which interchange fees became higher and lower under the new rules. (JEL G28)

Nowcasting GDP: Electronic Payments, Data Vintages and the Timing of Data Releases

We describe and assess the usefulness of a newly-constructed database of electronic payments, comprised of debit and credit card transactions as well cheques that clear through the banking system, as indicators of current GDP growth. Apart from capturing a broad range of spending activity, these variables are available on a very timely basis, thereby making them suitable candidate indicators. Controlling both for the release dates of various variables and the vintage of GDP available to analysts at the time a nowcast is produced, we generate nowcasts of GDP growth for a given quarter over a span of five months, which is the period over which interest in nowcasts would exist. We find that nowcast errors fall by about 60 percent between the first and final nowcast. Evidence on the value of the additional payments variables is mixed, however; the point estimates suggest reductions in forecast loss at some nowcast horizons, but with considerable variability.

Card bases payment mode - an accounting perspective: a comparison between credit card and debit card payment systems in India

When commerce goes electronic, the means of paying for goods and services must also go electronic. Thus, for electronic commerce it is also necessary to change payment mode from physical to logical. Many businesses accept payment by card for their goods and services and this can undoubtedly offer some distinct advantages as far as accounting and business is concerned. After considering the advantages we should know how other people think of it. So in this study, we conducted a survey to know how an ordinary Indian customer feels about electronic payment so that business houses can make changes in their accounting system to incorporate the customers’ choice. Studies show that followed by the slowdown, Indians continued to spend online in the last quarter of 2008 to emerge as the third highest spenders on the internet in the Asia Pacific region. During the present study, it has been observed that the credit card and debit card payment systems are more common as compared to other modes of electronic payments. Thus in this paper, we are presenting complete information on the credit card and debit card payments and transactions in the last five years and until November 2010 in India.

Banks Collect Overdraft Opt-Ins Through Misleading Marketing: Survey Finds Low Opt-In Rate, High Number of Misperceptions

A survey was conducted regarding consumers choices whether to to overdraft coverage for their checking accounts. Many banks routinely cover any transaction that overdraws a customer’s account, including checks, ATM withdrawals, and point-of-sale debit transactions for a fee of about $34 -- often called “overdraft protection.” The Federal Reserve Board issued a rule requiring that banks and credit unions obtain customer consent before approving debit card transactions for a fee. Many banks responded by conducting aggressive campaigns aimed at getting customers to opt-in. The survey results find that only 33 percent of account holders opted-in to overdraft coverage. Most who did opt-in based their decision on misunderstandings of the nature of this coverage. Sixty percent of consumers who opted in stated that an important reason they did so was to avoid a fee if their debit card was declined. In fact, a declined debit card costs consumers nothing. Sixty-four percent (64%) of consumers who opted in stated that an important reason they did so was to avoid bouncing paper checks. The truth is that the opt-in rules cover only debit card and ATM transactions. For almost half of those who opted in, simply stopping the bank from contacting them with opt-in messages by mail, phone, email, in person, and online banking was a factor in their decision.

Consumer Inattention and Bill-Shock Regulation

For many goods and services, such as cellular-phone service and debit-card transactions, the price of the next unit of service depends on past usage. As a result, consumers who are inattentive to their past usage but are aware of contract terms may remain uncertain about the price of the next unit. I develop a model of inattentive consumption, derive equilibrium pricing when consumers are inattentive, and evaluate bill-shock regulation requiring firms to disclose information that substitutes for attention. When inattentive consumers are heterogeneous and unbiased, bill-shock regulation reduces social welfare in fairly-competitive markets, which may be the effect of the FCC's recent bill-shock agreement. If inattentive consumers underestimate their demand, however, then bill-shock regulation can lower market prices and protect consumers from exploitation. Hence the Federal Reserve's new opt-in rule for debit-card overdraft protection may substantially benefit consumers.

A hybrid model for plastic card fraud detection systems

In this paper we present the framework for a hybrid model for plastic card fraud detection systems. The proposed data-customised approach combines elements of supervised and unsupervised methodologies aiming to compensate for the individual deficiencies of the methods. We demonstrate the ability of the hybrid model to identify fraudulent activity on the real debit card transaction data. We also explore the model’s efficiency against that of the existing monitoring system of the collaborating bank, using appropriate performance assessment criteria.

Asthma Induced by a Thermal Printer

To the Editor: Point-of-sale terminals are devices used worldwide for credit-card or debit-card transactions or to print a variety of coupons. These machines print receipts on thermal paper covered with N-propyl-acrylamide and acrylate tints. We report on a nonsmoking 62-year-old woman without atopy in whom asthma symptoms developed after she had worked for 20 years selling lottery tickets inside a 4-m3 kiosk. For the past 3 years, she had been using a point-of-sale terminal to print lottery tickets. She had a 2.5-year history of rhinoconjunctivitis, facial edema, cough, shortness of breath, and wheezing. These symptoms occurred within 30 to 60 . . .

ATMs vs. POS Terminals: A Horse Race?

This paper analyzes the adoption, diffusion and interaction patterns of the widely observed expansion of ATM and point-of-sale (POS) devices in the banking industry. POS (debit and credit) card transactions are considered as a main paradigm of a welfare-improving transition from cash to electronic-based payment instruments. This transition, however, is following a slow path in many developed countries which can be, at least partially, due to the over time overlapping of the objectives of banks in deploying ATMs (moving some front-desk activities away from branches) and POS devices (increasing the use of cards for purchase transactions). The results of various empirical tests in this paper suggest that the adoption and diffusion of ATMs and POS machines at banks is mostly driven by rival precedence, network effects and market power while demand factors do not seem to be significant. The growth of ATMs is found to negatively affect POS adoption which, in turn, suggests that the promotion of cards relative to cash is diminished by the co-existence and joint promotion of these two rival technologies. Additionally, we provide estimates of the effects of these technologies on the demand for currency. The results show that POS devices and higher POS transactions may reduce significantly the demand for currency and offset the negative effects that the deployment of ATMs and ATM use may have on the demand for currency.

Payment Card Rewards Programs and Consumer Payment Choice

By using a unique data set that contains detailed information on consumer perceived attributes of payment methods and consumer perceived acceptance of payment methods by merchants, we estimate the direct effects of rewards card programs on consumer payment choice for in-store transactions. Our estimation approach, which follows Harris and Keane (1999), allows us to alleviate the endogeneity problem of rewards. To shed light on the public policy debate about whether to allow interchange fees to cover the costs of rewards, we conduct counterfactual experiments to examine the effects of removing rewards from credit and/or debit cards, and find that: (i) a small percentage of consumers would switch from electronic to paper-based payment methods, (ii) the effect of removing credit card rewards is greater than that of removing debit card rewards, and consequently, (iii) removing rewards from both credit and debit cards would reduce credit card transactions, but increase debit card transactions, and (iv) removing rewards could reduce consumer credit card debt. We also discuss implications on how removing rewards may influence card issuer profitability and consumer welfare.