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Star Networks Inc., which processes more PIN-less debit transactions than any other network, is launching a pilot to test PIN-less debit for recurring payments and is exploring a concept that could extend direct debit of checking accounts to online shopping. The latter concept, says Tom Gandre, senior vice president of product management at First Data Debit Services, which includes Star, could enter the pilot stage by year's end, though he won't give details on participants or how it would work. Some form of Web-based real-time debit is “on our radar screens,” Gandre says. “There are some things we're working through.” First Data Corp. acquired the Star network last year as part of its acquisition of Concord EFS. The idea behind real-time debit on the Web is the same as that behind PIN debit at the point of sale, with authorization in real time and funds settlement within hours of the transaction. With rising interchange and back-office costs, online retailers are starting to seek out alternatives to credit and signature-card debit for payment, and are attracted to low-cost channels such as PIN debit and the automated clearing house. For now, Star and other electronic funds transfer networks confine PIN-less debit, which allows consumers to make Internet payments with their EFT cards without entering a PIN, to utilities, insurers, schools, and other biller categories considered a low risk for fraud. Star began offering the product to utility companies and last year added insurance companies and secured lenders to its roster of approved merchants. It is also piloting PIN-less payments with some government agencies. Altogether, says Gandre, Star is now processing these payments for 170 utilities, 30 lenders, 25 insurers, and four educational institutions. The network won't release volumes, but Gandre says transactions are up 52% in the first quarter over the year-ago period, following a 190% jump in 2004. With PIN-less debit, merchants bear the responsibility of authentication and the risk of loss. But, since they're dealing with customers whom they have enrolled as accountholders, the risk of fraud and chargeback is very low. “Who would want to pay someone's utility bill?” Gandre asks. Star's success with the product has led it to begin testing a recurring-payment model, in which consumers can make regular payments at set amounts to certain billers without the need to initiate each transaction discretely. Gandre won't give details of the pilot, which just began, other than to say it involves between one and three merchants and could run for six months. The ability to make sure and instant payment at the last minute is causing PIN-less debit to grow rapidly within the convenience-pay segment of the electronic bill-pay market, where billers charge customers fees to accept payments hours before they are due (Digital Transactions News, March 3 and March 4). Indeed, the conversion of an unspecified number of check card transactions to PIN-less debit led Visa U.S.A. to issue in February a routing-rule clarification mandating that Internet transactions that start out as Visa payments must be routed through VisaNet, the company's backbone network. Gandre says he's not aware of converted transactions arriving at Star's switch. Altogether, PIN-less debit transactions are expected to double this year and again in 2006, according to figures from Celent Communications.
