Recession Helps Fuel Merchant Interest in Online PIN Debit

Merchant e-Solutions Inc., which on Tuesday announced it is actively marketing online PIN debit to both existing and prospective e-commerce merchants, credits the deep recession of the past year or so with helping to drive merchant interest in the service. “The recession has made [online PIN debit] more important,” says Kevin Gallagher, general manager for e-commerce at the Redwood City, Calif.-based processor. “Merchants have really been excited about it.” The downturn, coupled with a stiff credit crunch, has pushed up usage of PIN debit at the point of sale, in many cases replacing credit card usage. That has caught online merchants' attention, says Gallagher. His plan is to offer the product, called PaySecure, to both current e-commerce clients and merchants the processor boards from now on. He also sees an opportunity with merchants already signed up with other acquirers. “We're able to offer online PIN debit to merchants not using us for credit card processing,” he notes. About half of Merchant e-Solutions' 65,000 merchants are e-commerce sellers, but they account for more than half of the company's transactions. PaySecure is a product of Acculynk Inc., a software vendor in Atlanta that has signed agreements with half a dozen electronic funds transfer networks to enable online PIN debit for their members. The Accel/Exchange network is farthest along, having enabled 13.5 million of its cards for PaySecure, according to Ashish Bahl, chief executive at Acculynk. NYCE and Pulse are two other major networks that have agreed to support PaySecure. At the same time, Merchant e-Solutions and another processor, U.S. Bancorp's Elavon unit, have been signing merchants to accept the product. Spirit Airlines, an Elavon merchant, announced on Tuesday it will accept PaySecure transactions on its site. Gallagher says a major client of Merchant e-Solutions, a retailer with more than $100 million in annual sales, will announce soon that it too will accept PIN debit transactions through the PaySecure system. Two other client merchants, Jelly Belly and 2checkout.com, have been signed for online PIN debit through the product. Gallagher says there are others that he can't yet name. With PaySecure, a customer enters his PIN by means of mouse clicks on a graphical PIN pad presented on his PC screen. The numeric “keypad” scrambles after each entry. Since there is no card swipe or terminal, transactions must be authenticated at an issuer host, but otherwise flow through EFT switches as point-of-sale payments would, with same-day settlement and guaranteed funds to merchants. With PIN debit generally priced to merchants at a lower cost than signature debit, Gallagher sees no difficulty in selling the product to online merchants. Between 20% and 50% of their transactions are currently signature-debit payments, he estimates. “Even if you converted 5% to PIN debit, you're saving a tremendous amount of money,” he says, along with additional savings in fraud. While he won't disclose Acculynk's pricing, Bahl says his company's fees are such that, even when including interchange and customary acquirer fees, PaySecure transactions “are still a lot less than signature debit.” As merchants respond to increasing consumer interest in using PIN debit online, Gallagher sees a further advantage for Merchant e-Solutions. “It's only us and Elavon that offer this in the world,” he notes. “A lot of merchants that want this can't get it because their processor doesn't support it.” Another major acquirer, Chase Paymentech Solutions, agreed last year to run a pilot for PaySecure but has not yet started it. Still, while the downturn may be sparking merchant interest, some observers say many merchants may be of two minds about PIN debit. They may relish the cost and fraud savings but remain wary about conversion rates and the security of the PIN, for example. Adil Moussa, an analyst at Aite Group LLC, Boston, says some merchants are reluctant to introduce any payment method that adds steps to the checkout process. “The case is still for the providers to prove,” he says. “Merchants probably do want it but they want to see a solution that won't jeopardize what they're doing now.” Others point out that not all issuers in the participating networks are supporting PIN debit in e-commerce, which limits the available card base. That, however, doesn't faze Gallagher. “It's not as big of an issue as people have been saying,” he says. “[Merchants] understand it's not all the way there, but [the card base is] growing every month.”