As Its PayPal Program Unfolds, Star Zeroes in on Online PIN Debit

Six months after announcing it will process online PIN-debit transactions through PayPal Inc., the Star electronic funds transfer network has signed a number of member banks for the new service, with “implementations in progress,” says Julie Saville, vice president for product management at Star. Despite the tie-up with PayPal, however, the network continues its search for technology to enable cardholders to make PIN-debit transactions online directly with their Star cards. “We still would like to have a [financial-institution]-authenticated Star solution,” Saville tells Digital Transactions News. As recently as the fourth quarter of last year, Star polled a network advisory board regarding a range of possible techniques, including so-called floating PIN pads and one-time passwords delivered via mobile phones. But “there was no clear winner,” Saville says, sending Star officials back to the drawing board. However that blueprint emerges, it will have to account for developments in emerging channels such as mobile payments, she adds. “We don't want to spend a ton of money on something that will be outmoded in three years by mobile,” she notes. Star's efforts to accommodate online shoppers looking to use their PIN debit cards follow moves by other EFT networks to enable the function and take advantage of the popularity of PIN-protected debit. For example, a handful of networks, including large Star rivals Pulse, Accel-Exchange, and NYCE, have signed up to use a method developed by Acculynk Inc., an Atlanta-based software house, that allows cardholders to enter PINs on their PCs by means of mouse clicks on a graphical representation of a PIN pad, also known as a floating PIN pad. NYCE is also developing its own technology, called Safe Debit, using technology from a San Jose, Calif. software startup called Verient Inc. Meanwhile, Star is working on bringing its first members into Debit Access, the service it announced in October after working out arrangements with PayPal (Digital Transactions News, Oct. 8, 2009). Without being specific about numbers, Saville says the network has “a great pipeline” of banks waiting to introduce Debit Access. Since cardholder enrollment in Debit Access depends on a secure connection between members' online-banking programs and PayPal, progress has been slowed somewhat by the need for the banks' vendors to rejigger their systems. Two unnamed vendors are currently in certification testing, Saville says. Once this work is done, she says, bringing banks live on the service should be a relatively quick process. More banks will be likely to sign contracts for Debit Access, as well, once they know what their online-banking vendors will charge, she says. “The good news is that we continue to get a lot of interest [from member banks,]” Saville says. With Debit Access, which PayPal is also trying to sell to other EFT networks, cardholders register their PayPal accounts with their banks, which allows the banks to “brand” each PayPal transaction using the Star card. With each transaction, the customer will see Star as the default payment option as well as the logo of his bank. PayPal charges merchants its standard fees on each transaction and, in the Star program, shares anywhere from 45 to 60 basis points with participating banks. That's significantly less than the 160 basis points PayPal estimates banks earn on signature debit, but PayPal argues banks are already losing those transactions to alternative payment methods. “Banks are not getting 160 basis points,” said Rene Pelegero, senior director for industry relations and strategy at PayPal, during a presentation he and Saville made this week at a payments trade show in Seattle. “Banks figure that 160 basis points is money they've already lost.” Debit Access transactions also replace the ACH transactions banks have been getting from PayPal, all of which carry a small cost. “PayPal is probably among the top five originators of ACH” for Star members, Saville says. She adds the opportunity to earn fees appeals most to Star banks. “A year ago, it was the [branding feature], but more recently it's all about revenue,” she notes. While Debit Access involves PIN debit cards, cardholders do not enter a PIN to authenticate themselves. Instead, they use their online-banking credentials to enroll in the program with their banks. At that point, the bank links the authenticated cardholder to the PayPal site, where he sets up PayPal credentials consisting of an e-mail address and password. Once PayPal passes transactions to Star, the network authorizes and settles them as it does any other EFT transaction, but PayPal assumes liability on unauthorized transactions, with cardholders directed to PayPal to resolve disputes.