The Gimlet Eye: Too Soon for a Requiem for PIN Debit Online

 

One of the many questions the Durbin Amendment has raised—and that won’t likely be answered for months, perhaps years—is just what will become of the movement to bring PIN debit to online purchases.

 

After all, much of the rationale for PIN debit, from the online merchant’s point of view, lay in its lower cost compared to signature debit. But now, thanks to the Federal Reserve, which was charged with implementing Durbin, all debit transactions on cards from regulated issuers cost the same, regardless of authentication method. And, since regulated issuers are those with $10 billion or more in assets, they account for most of the cards.

 

So now, without a cost advantage, will PIN debit retain its appeal? There is no “PIN pad” for online transactions, so merchants have to figure out how to accept PINs securely. That typically requires them to buy systems from third-party vendors. And PIN transactions are single-message, unlike signature debit’s dual-message characteristic. That means authorization and settlement occur in the same message with PIN, whereas with signature the two are separated. So e-commerce merchants that are partially out of stock, and want to settle a bit later when they can fill the order, are out of luck with PIN debit.

 

And yet, and yet. PIN debit has one shining advantage: Its fraud losses are a lot lower than for signature. That’s huge for online merchants, which are typically on the hook for fraud because they deal in what the card networks delicately call a “card-not-present” environment. That’s another way of sayng that they can’t see whom they’re dealing with, so that PIN authentication is helpful, indeed.

 

Now, the effort to bring PINs to the Internet was a slow-moving trend even before Durbin. And the law has no doubt raised enough uncertainty to slow things down even more. But that doesn’t mean there isn’t plenty of action, if you know where to look. The Shazam debit network, based in Iowa, is working with no fewer than three technology vendors to make PIN debit online happen. Among other major networks, Star is working with one and says it’s still seeking a home-grown solution. And NYCE and Pulse are each working with separate providers.

 

At the same time, Shazam late this summer began testing dual-message PIN debit, and plans to introduce it early in 2012. That could make PIN debit even more appealing to online retailers, since it will ride on familiar rails and presumably require less integration work.

 

It is, of course, early days. But it’s far too soon to say that Durbin has put the kibosh on PIN debit for e-commerce.

 

 

 

John Stewart, Editor

 

john@digitaltransactions.net