A Visa Rule Change Prompted by DoJ Could Foster PINless Debit

Pressed by the U.S. Department of Justice, Visa Inc. has changed its operating rules to allow PINless debit card transactions for small-ticket purchases, just as it waives the signature requirement for low-value purchases on its signature-based Visa check card. Tuesday's announcement by the DoJ revealed a debit card investigation that had been secret. The DoJ coordinated its investigation with parallel probes by the attorneys general of New York, Ohio, and the District of Columbia. The authorities were examining whether the Visa operating regulation in question had the potential to reduce competition between Visa and the PIN-debit networks. At issue was Visa's waiver of the signature requirement for so-called small-ticket debit transactions, typically those under $25, in such merchant categories as fast food, gas stations, transit, copy services, and some other categories. While the rule change effective in July will have an immediate impact at the point of sale, it might also help PIN-debit cards make headway on the Internet, where they are conspicuously absent today as a payment alternative. The fate of PINless debit on the Web, however, rests mostly with the electronic funds transfer networks. These networks have been reluctant to make PINless debit generally available, citing fears about security and operational changes that would be needed to make PIN-debit a viable choice for Internet shoppers. In the U.S., Visa- and MasterCard-branded signature debit cards typically carry the logos of at least one EFT network, allowing the cardholder to make a purchase using either a signature or a PIN. While permitting signature waivers on small-ticket Visa check card transactions, Visa “had prohibited banks from allowing merchants to waive entry of a PIN for most non-Visa debit transactions initiated from Visa-branded debit cards, including 'small-ticket' transactions and almost all Internet transactions,” a DoJ release says. Waiving the signature requirement produced benefits such as faster transaction times, and has encouraged merchants to adopt contactless card readers, according to the DoJ. Conversely, not allowing the PIN to be waived effectively gave the Visa check card, which costs merchants more to accept than PIN-debit cards, a competitive advantage in small transactions because of faster transaction times for consumers. The DoJ had not completed its probe when “Visa proposed eliminating the rules under investigation,” the release says. The release later says, “Visa's new regulations adopted in response to the Department's investigation allow banks to provide merchants the option of waiving the entry of a PIN. Visa has also amended its operating regulations to require that banks notify their cardholders that transactions not authenticated by a PIN or a signature might be processed via a PIN-debit network and not by Visa.” In a statement, Visa said it made the rules change because of the probes. “While Visa believes its previous rule was fair and competitive, Visa is pleased that the action will resolve the regulatory investigations of Visa's rules governing PINless debit transactions launched by the Department of Justice and these attorneys general,” the statement says. “Following this rule change, the decision on whether to enable these transactions will be made by financial institutions that issue Visa debit cards. Today, these issuers have chosen to process approximately 80% of their debit transactions over the Visa network.” A MasterCard Inc. spokesperson says MasterCard has no similar rule and was not investigated as part of the Visa probe. Payments consultant Steve Mott of Stamford, Conn.-based BetterBuyDesign says research shows consumers and merchants consistently favor PIN-debit over signature-debit. “I think this is just one of a series of legislative and judicial rulings and actions that are going to [go] in favor of consumer choice, and Visa and MasterCard need to be aware and prepared to start realizing that they don't make all the rules any more,” he says. Visa's PINless-debit rule change comes in the wake of changes the network is making in interchange pricing for gas stations in an effort to reduce their payment card acceptance costs as gasoline prices rise (Digital Transactions News, July 1).