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After Years of Pushing Signature Debit, Big Banks Are Promoting PIN, Study Shows
August 21, 2012

The nation’s biggest debit card issuers have reversed polarity and are now promoting PIN-debit cards over signature debit and small-value transactions over bigger tickets, if the results of a debit study released this week are any indication.

“Certainly, there’s a fundamental shift under way” among large banks to focus on PIN debit, says Steve Sievert, executive vice president of marketing and communications at the Houston-based Pulse EFT network, a unit of Discover Financial Services.

Pulse on Monday released its seventh annual “Debit Issuer Study,” and while it shows that more than 60% of all debit transactions for these issuers are secured by signature, that number may already be plummeting in favor of PINs. In large part this is because of the Durbin Amendment to the 2010 Dodd-Frank Act, which capped interchange for both signature and PIN debit for issuers with $10 billion or more in assets. Financial institutions with assets under that threshold, called “exempt” institutions, continue to receive unregulated interchange, which is set by the payments networks.

Because of the Durbin caps, which were codified by the Federal Reserve and put into effect Oct. 1, regulated issuers are now receiving 24 cents per signature-debit transaction, down from 52 cents, and 23 cents per PIN transaction, down from 32 cents, according to the Pulse study. The study, conducted by research firm Oliver Wyman, received results from 57 issuers, including 27 regulated institutions and 30 exempt ones. Exempt issuers, by contrast, are collecting 46 cents and 33 cents, respectively, for signature and PIN debit transactions, virtually unchanged from what they received before last October.

With crimped debit income and with pricing set the same for signature and PIN, big banks are now promoting PIN debit because of its lower costs after years of pushing cardholders to use signatures, the study says. Certain network costs, such as switch fees, are typically lower for PIN debit than for signature, according to Sievert. But the big difference lies in fraud losses. These losses were more than eight times greater in 2011 on signature-debit volume than on PIN debit, according to Pulse studies, or 8.06 basis points of volume compared to 0.99. Also, signature-debit fraud rose from 7.5 basis points in 2010, while PIN fraud declined from 1.26 basis points. “There’s a better risk profile [with PIN debit],” says Sievert. “Issuers don’t experience as much fraud.”

Some regulated issuers responding to the latest debit issuer survey reported they are now much more aggressive about promoting PIN debit to consumers. “We may have some sweepstakes for PIN transactions,” said one regulated financial institution quoted in the study. Another reported heavy-duty calling and direct mail to cardholders to promote PIN debit.

Shifting from decades of signature emphasis to a new stress on PINs will require heavy consumer education, Sievert says, though he adds that the new message is not likely to confuse consumers. Certainly, consumer usage so far hasn’t suffered. PIN transactions for the surveyed issuers increased 9% last year, exceeding projections by 2 percentage points. Signature transactions were up 11%, beating projections by 4 points. For 2012, respondents project a healthy 15% increase in PIN traffic and an 8% rise in signature transactions.

At the same time big issuers are switching gears from signature to PIN, they are also stressing low-value transactions. Formerly, percentage-based interchange induced them to encourage bigger tickets, but now a fixed fee has them eyeing small average values, where the regulated rate bulks large as a percentage of the sale, according to the study. “Smaller-ticket purchases now have higher margins” for regulated issuers, reports the study.

Indeed, higher-value transactions secured by signature may no longer be worth processing for at least some regulated issuers. “Large-ticket signature purchases now cost more than we receive in interchange revenue,” reported one regulated institution quoted in the study.

Issuers seeking to promote low-value transactions, though, are likely to run into resistance from merchants. Vending operators, for example, have already raised alarms about the effect the Durbin Amendment is having on their costs.


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