CyberSource: PIN-Less Online Debit Responds to Merchant Demands

CyberSource Corp. says it has introduced a so-called PIN-less debit card payment option for online transactions at the urging of merchants looking for ways to cut their transaction costs. The Mountain View, Calif.-based payments gateway for e-commerce merchants claims to be the only major vendor offering the service, which would allow consumers to make payments on the Internet with debit cards secured with personal identification numbers, but without entering the PINs. Electronic funds transfer networks have been loath to allow PIN-based debit transactions online for fear that criminals intercepting both card numbers and PINs would be able to gain access to customers' demand-deposit accounts. Even now, CyberSource says, participating networks, which include NYCE, Star, and Pulse, are restricting PIN-less transactions to a narrow range of industries, including utilities, education, insurance, government, and lending, which are seen to be less inclined to fraud losses. “The general rule of thumb is to think of [approved industries] as regulated industries,” says Steven W. Klebe, vice president of strategic alliances and payment and risk management at the company. Even so, Klebe says, the new service has been introduced to meet rising demand from Internet merchants and service providers seeking ways to lower transaction costs online as well as at the physical point of sale. PIN-based debit card transactions generally cost 25 to 40 cents, usually considerably less than credit card discount rates on comparable credit card transactions. “This is absolutely being driven by merchant savings,” says Klebe. “All they care about is saving money.” He adds that Chase Merchant Services LLC and Paymentech LP, the processors to which CyberSource routes transactions, are pressuring debit networks to allow PIN-less debit. “They're the ones driving networks very hard to get with the program,” he says. Still, it will be months before any appreciable volume of transactions begins to flow. Klebe says merchants have to be sold and approved on a case-by-case basis, and they also must make a number of software modifications on their sites to support the option. Says Klebe: “It will take a good, solid six months to get to any critical mass of people going live with this.”