Thursday , March 28, 2024

AOL Seeks Less Costly Payments, But Eschews PIN-less Debit

PIN-less debit may be gathering momentum for online bill payments, but not all potential billers are convinced they should offer the payment method, which depends on the same networks that switch PIN-based debit transactions at the point of sale and at ATMs. Because it carries lower acceptance costs than credit and signature-debit payments, coupled with online authorizations and guaranteed funds, PIN-less debit has begun to attract interest from billers, processors, and acquirers. Transaction volume is expected to double this year, to 36 million payments, and grow to 129 million by 2007, according to Celent Communictions. And at least one electronic funds transfer network, Star Systems Inc., this spring began piloting a recurring-payment capability, taking PIN-less debit beyond one-off transactions (Digital Transactions News, April 28). Don't count America Online Inc., however, among those likely to adopt it any time soon. The Dulles, Va.-based Internet portal, which boasts more than 20 million members, bills most of its users through charges to their credit card accounts. At 30 to 35 cents per transaction, a recurring PIN-less debit service could chop AOL's acceptance cost in half. But for now, the company says, no dice. “AOL is interested in it but not actively pursuing it,” says Benjamin L. Quigley, senior marketing manager for AOL renewal and payment marketing at the Vienna, Va.-based Internet portal. “I'm concerned about the member experience.” Quigley argues he's leery of PIN-less debit because it offers merchants cost-saving benefits without offering any tangible benefit to consumers compared to credit and signature debit cards. Adding the option to the list of available payment options, he says, asks consumers to forgo other cards, which may offer rewards points, for a card that typically offers no comparable value. “What's the benefit to the consumer is the thing I keep coming back to,” Quigley says. Indeed, some banks penalize cardholders for PIN debit usage. A Federal Reserve study late last year showed 14% of banks charge anywhere from 10 cents to $2 per transaction for PIN debit transactions, and 15% of all cardholders are subject to the fees (Digital Transactions News, Nov. 24, 2004). By contrast, fewer than 1% assess fees for signature-debit payments. Quigley fears the combination of bank fees and lost rewards points could be a double whammy for AOL, resulting in expensive customer-service inquiries and lost accounts. “If we lose one member because we were trying to save some cents on the dollar each month, we potentially lose $23.90 [monthly],” he says. That doesn't mean AOL isn't trying to find more efficient channels for electronic transactions. If an alternative payment method cut AOL's acceptance costs and offered consumer benefits at the same time, “we'd be all over it,” Quigley says. Introduced by the EFT networks in the late 1990s for online payments to utility companies, PIN-less debit has since been expanded to other industries, including secured lending, insurance, government, education, and cable and satellite.

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