Shut out of New Markets, PIN Debit Faces Big Growth Challenges

While PIN debit transactions at the point of sale are growing at a torrid pace, the payment application faces major hurdles when it comes to future growth, according to a research report released this week. PIN debit has registered annual growth rates between 35% and 38% since 2003, outpacing the growth of its signature-based cousin, whose growth rate has cooled somewhat to 18% in 2005 from 21% in 2003, according to the report, published by Mercator Advistory Group, Boston. But when it comes to three key emerging transaction markets?online commerce, recurring electronic bill payment, and contactless payments?PIN debit is virtually shut out, with signature-based debit the preferred option, says the report. Internet merchants are increasingly looking to embrace alternatives to credit cards as transaction volume online increases, creating higher and higher acceptance costs. At the same time, online volume is likely soon to begin migrating to mobile handsets, opening an entirely new platform for transactions. Also, contactless payment at the point of sale has spread rapidly in the past year, with an estimated 25,000 locations now accepting bank-issued contactless cards and fobs largely for low-value goods in high-throughput environments?though again these are limited to credit card and signature-debit accounts. “Left unchecked, the increased growth in Internet and mobile payments and cash replacement will occur primarily at the expense of growth in [electronic funds transfer] transactions,” says a Mercator statement about the research. “This will be of some concern if these new markets grow as quickly as proponents hope.” Managers of EFT networks, which switch PIN debit transactions between banks, confront a significant growth challenge if PIN debit continues to be excluded from these new markets, the report says. “While predicting overall growth of all three evolving markets may be difficult, it is clear that Internet payments will continue to grow significantly,” says Mercator analyst Tim Sloane, in the statement. “If the recurring-bills and cash-replacement market also experience high growth, then EFT operators may find themselves facing a growing barrier to market entry not unlike that experienced when they had to deploy key pads on [point-of-sale] devices to enable PIN-based debit at the POS.” Network managers, the report concludes, may need soon to draw up plans to enter these same markets. That effort could require some major rewriting of longstanding network rules. For example, fearing the potential for fraud, networks have banned the use of PIN debit online except in the instances of payments to certain classes of billers, such as utility companies and mortgage lenders. That could change soon, though, as some recently founded companies like Irving, Texas-based ATM Direct have begun approaching the networks with technology that purports to allow consumers to make PIN debit payments online without the risk of compromising their PINs (Digital Transactions News, June 7). At the same time, EFT network managers may face a pricing hurdle with their member banks. Though PIN debit transactions appeal to merchants because they carry lower interchange fees than credit and signature-debit traffic, they also for this reason offer less income to issuing banks.