This spring’s settlement between the bank-owned card associations and retailers led by Wal-Mart Stores Inc. has been widely interpreted as a blow to the fortunes of so-called PIN-based debit, or debit card transactions effected by a consumer’s personal identification number rather than his signature.
That’s because the settlement terms required the card networks to lower interchange on signature-based debit, thus cutting PIN debit’s price advantage. But at least one industry observer argues that the settlement may actually boost PIN debit by offering merchants an incentive to buy and install the gear they need to accept PINs, such as PIN pads. Phillip L. Kumnick, senior vice president of global partner solutions at Vital, the Tempe, Ariz.-based transaction processor, says many merchants will use the savings they now garner on signature debit transactions to subsidize their $300 PIN pads.
The adoption rate they need–that is, the number of customers they need switching over to PIN-based debit to justify the PIN investment–is lower thanks to the savings they pocket on each signature-based debit transaction, he says. Until the end of the year, interchange on signature-based debit transactions is roughly one-third lower as a result of the settlement, in which the card companies agreed to abandon their long-standing “honor all cards” rules requiring merchants to accept both credit and debit cards.