PINless Debit Could Crimp the ACH’s Style on the Internet

Although Internet transactions have become a highly popular form of payment on the automated clearing house network, the emergence of direct debit online may stunt the growth of Web ACH transactions, an executive with a major Internet payment processor said today. Internet payments, which the National Automated Clearing House Association classifies as a form of electronic check known as WEB transactions, are on track to hit 650 million transactions this year, said Larry De Palma, director of product management at Paymentech L.P. during a presentation today at NACHA's eCheck 2004 conference in San Francisco. That's up from about 500 million last year and 150 million in 2002. “It could hit a billion in a couple of years,” De Palma said. But debit card transactions conducted online without a personal identification number, known as PINless debit, casts a shadow over Internet payments on the ACH, and could cause WEB volume to plateau, DePalma told Digital Transactions News. That's because PINless debit, a product recently introduced by the major electronic funds transfer networks, is confined to payments to utilities, universities, government agencies, and other billers and regulated industries regarded as low risk. These, however, are among the very markets that have been the most eager billers and merchants when it comes to adopting WEB. “This is a formidable challenge to the WEB e-check,” De Palma told his audience. “It's offered in all the channels that are successful with WEB.” Hard goods retailers on the Internet, on the other hand, have largely shied away from the ACH, regarding it as too risky, despite considerable cost advantages over credit card fees. PINless debit, offered by major EFT networks, including NYCE, Pulse, and Star, is more expensive than WEB but cheaper than credit card transactions. And they offer guaranteed payment with electronic authorization. A $75 Internet transaction would cost merchants $1.53 on a bank credit card, about 40 cents on the EFT networks, and about 20 cents on the ACH, according to figures from Paymentech. So far, the EFT networks have been willing to offer PINless debit transactions on the Internet only to categories of merchants and billers regarded as low risk owing to their close relationship to customers and their ability to quickly shut off service in case of returns. These categories include telecom, cable, and satellite companies, utilities, insurance carriers, government agencies, and educational institutions.