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While the payments industry awaits stringent new rules concerning debit card transactions, some processors and technology players are starting to exploit what they see as opportunities in the new regulations. Acculynk Inc., for example, released last week a statement calling on Internet merchants to sign up now for online PIN debit, a service Acculynk offers. The statement warns that issuers will favor credit cards and PIN-only debit cards under the new rules, which will cap debit interchange, leaving online merchants not equipped to accept PIN debit behind.
“If merchants can’t process PIN debit, all the transactions will flow to credit cards,” Ashish Bahl, chief executive at Atlanta-based Acculynk, tells Digital Transactions News. That will raise merchants’ costs significantly, he argues, since credit transactions carry higher interchange.
With the defeat earlier this month of a bill in the U.S. Senate to delay the effective date of the Durbin Amendment to the Dodd-Frank Act, that amendment’s strict debit card pricing caps could take effect as early as July 21. The Federal Reserve, which is charged with writing the rules to implement Durbin, released in December a proposal to cap debit card interchange at 12 cents, down from an average of 44 cents. Its final rules are expected by next month. Durbin exempts reloadable prepaid cards, and it does not apply to credit cards or to issuers with less than $10 billion in assets.
While Durbin’s restrictions apply equally to PIN and signature debit, Acculynk argues banks will issue more PIN debit cards because PIN’s lower fraud costs will leave them with better margins under the cap. Cardholders will look to use their cards online, the company says. Bahl concedes banks will likely favor higher-fee credit cards even more, but he says they can’t walk away from the investment they’ve made in debit. “They spent a lot of capital educating everyone on the benefits of debit, and merchants are completely sold on it,” he says.
Acculynk has signed up nine EFT networks to offer its PaySecure technology, which lets consumers enter PINs on a so-called floating PIN pad that appears on their computer screens. Not all the member banks in those networks participate. More than 3,000 merchant sites accept PaySecure, the company says.
But Rene Pelegero, president of Woodinville, Wash.-based Retail Payments Global Consulting Group LLC and formerly a payments executive at Amazon.com Inc., argues that, by making no distinction between PIN and signature debit, the Durbin regulations make online PIN debit less appealing to e-commerce merchants. While he agrees PIN debit’s lower fraud losses could cause issuers to favor PIN debit, he says online merchants could balk at the added costs of installing the payment type. And with PIN and signature debit priced the same, he says, merchants will likely prefer to continue accepting signature debit. “That’s the big challenge,” he says. “Merchants have to create another interface to a PIN network, so why not keep using the rails already in place? There is a lot of work they have to do [for PIN debit], and the interchange is the same.”
Aside from technical integration tasks, online merchants must change accounting systems that were built for credit cards to accommodate PIN debit’s real-time availability of funds, Pelegero points out. He adds that EFT networks still have not worked out systems to handle consumer disputes. “So when consumers experience these challenges, they’ll contact banks,” which will refer them to the merchants, he says, representing another cost.
Still, consumers may be ready for online PIN debit. Some 54% of debit card users surveyed by Total System Services Inc. and Mercator Advisory Group said they were interested in the idea of entering a PIN to secure an online transaction. The survey results, which touch on broader issues raised by Durbin, were released this week.
