First Data’s Star Makes a Bid for Signature Transactions

Payment processor First Data Corp.’s Star debit network is poised to aggressively challenge Visa Inc. and Mastercard Inc. for a share of the signature-debit market. That’s a business the global networks have dominated since signature debit became a payment option more than 20 years ago.

Star gained a potentially big foothold in the signature market in March when Walmart Inc., the nation’s largest retailer, began using its Star Signature service, First Data executive vice president Barry McCarthy said last month at the company’s 2018 Investor Conference in New York City.

“With Star Signature, we intend to challenge all the incumbents and compete for all transactions,” said McCarthy, who heads First Data’s Network & Security Services unit, which includes Star and processing services for debit card issuers. Star aims to capture what McCarthy termed a “mid-single-digit” percentage share of the signature market.

Star first introduced a signature-authentication service about two years ago. In 2017, the network rolled out Star Signature, which McCarthy said uses a “true dual-message protocol” that he claimed competing networks lack.

In traditional PIN-debit transactions at ATMs and the point of sale, the authorization and clearing information is contained in one message. PINless debit transactions, in which PIN authentication is eliminated, also use the single-message format. But signature debit and credit cards, typically authenticated with signatures, use the so-called dual-message format, in which the clearing/settlement message trails the authorization.

PIN-debit networks until recently have been shut out of many merchant segments because dual-messaging is essential for car rentals, ride-sharing, e-commerce orders with delayed shipments, and many other transactions in which the final payment amount may not be known at authorization.

“Dual-message capability is critical in the fastest-growing segments like digital commerce and the Internet of Things,” McCarthy said. “This protocol works well in all channels, and no PIN pad is required.”

How much signature volume Star may get from Walmart is unclear, since it’s apparently not the only network providing the retail giant with such a service. Processor Fiserv Inc.’s Accel debit network, for example, confirmed in January that Walmart is using its signature service.

When asked by Digital Transactions how many debit networks it uses, a spokesperson for Bentonville, Ark.-based Walmart said by email that the company does not discuss details of agreements that have not been announced.

McCarthy, however, has high hopes for Star Signature. Walmart already was using Star’s PINless debit service, he noted. Star’s PINless volume has been growing 40% annually over the past few years and now accounts for 10% of total network volume, he said.

“We expect to see the same thing for Star Signature over the next 18 months,” he said.

Relying on 2016 figures from the Federal Reserve and internal company estimates, McCarthy said the PIN- and signature-authenticated debit market generates about $4.5 billion annually in revenue for networks.

McCarthy estimated Star currently has about 7% of that market, virtually all from PIN-based transactions and their PINless cousins, which translates into about $315 million in revenue. With its newer products kicking in, Star is aiming for about 10% of revenues.