Online PIN Debit Pilot Could Lead to Commercial Service by Mid ’09

The Accel/Exchange electronic funds transfer network said on Thursday it will launch a pilot in which it will switch PIN debit transactions originating at e-commerce stores. The pilot, which the Morris Plains, N.J.-based network will run with Acculynk Inc., a provider of PIN debit technology tailored for use online, will likely get under way before the end of the year and could lead to a commercial product for all network members as soon as the second quarter of next year, says Michael J. Kelly, general manager for Accel/Exchange, a unit of Brookfield, Wis.-based Fiserv Inc. “We'll have it available for all issuers by the second or third quarter if the pilot goes well,” he tells Digital Transactions News. Meanwhile, Acculynk says it has signed agreements with three other EFT networks to join the pilot. The next network announcement, says Nandan Sheth, president of Atlanta-based Acculynk, should come in about 60 days. The parties are holding off on immediate announcements pending a final review of common operating standards and other matters, Sheth says. Acculynk, which acquired the assets of ATM Direct earlier this year (Digital Transactions News, April 3), relies on software that presents a so-called graphical PIN pad on the user's screen. The consumer uses mouse clicks rather than his keyboard for PIN entry. ATM Direct had conducted a proof-of-concept project for its technology with Accel/Exchange in 2006 and 2007. Currently Accel/Exchange is seeking issuers to participate in the pilot, which will also include four online merchants. Kelly says he'd like to see around 10 banks or credit unions involved in the pilot, or at any rate enough issuers to bring “a few million cards” into the trial. “We want a meaningful data set,” he says. Accel/Exchange links about 2,400 financial institutions, including both banks and credit unions, and processes transactions for almost 20 million cards. Participating banks must be capable of hosting PIN offsets?the digital keys to the PINs securing each transaction?on their own servers rather than relying only on Track 2 embedded in cards' magnetic stripes, since the pilot transactions will by definition be card-not-present, Kelly says. “We don't expect that to be a huge problem,” he says. Acculynk's Sheth won't name the participating merchants but says they include a hardware merchant, an outdoor-apparel retailer, a general e-commerce merchant, and an aggregator. All four are what he terms “mid-tier” merchants, with one currently doing $250 million annually in online sales. Two or three of these merchants are expected to be live on the pilot by the end of the year, with the balance coming onstream in January. If the pilot performs as expected, four more “tier-one” merchants will likely join the program, says Sheth, who says Acculynk is in “advanced discussions” with the merchants. Merchant pricing for the pilot hasn't yet been determined, Kelly says, though he adds that Accel/Exchange's interchange rates on the transactions will be attractive to issuers while offering a significant break to merchants compared to Internet-based signature debit and credit card rates. “It'll yield something to issuers greater than what's available on brick-and-mortar” PIN debit, he says. Merchants are expected to benefit also from reduced chargebacks, real-time guaranteed funds settlement, and sharply lower exception rates, both Kelly and Sheth say. The concept of PIN debit online has historically been hindered by issuers' fear of losing interchange income as higher-rate credit card and signature-debit transactions are replaced by lower-rate PIN debit payments. But Kelly says Accel/Exchange members are “excited” about the technology's prospects for tapping into pent-up demand among consumers to use PIN debit cards in e-commerce. Consumer preference for PIN debit is such that the payment method now accounts for one-fifth of in-store transactions, compared to 11% in 1999, according to research released last week by Hitachi Consulting and the Bank Administration Institute. “To the consumer, [the issuer] can say you can transact [online] any way you like,” he says. “If you like PIN debit at brick-and-mortar stores, you'll like it on the Internet.” Moreover, issuers now realize they face a larger threat from the growth of alternative online payment methods, which for the most part generate no income for banks, than they do from PIN debit online, says Sheth. “The whole question around the cannibalization of signature-debit revenue has been superseded the question of the alternatives,” he says.