Visa Rule Change Means Little Change for Web-Based PINless Debit

Visa Inc.'s rule change regarding PIN-based debit card transactions, which antitrust authorities disclosed last week, raised hopes that PINless debit would soon be making headway in Internet payments, but on second glance that's not likely to be the case, analysts say. That's because the electronic funds transfer networks, not Visa, still largely control PIN debit's fate on the Web. “The EFT networks need to get involved,” says Jennifer Roth, research director of global payments at Needham, Mass.-based TowerGroup Inc., an independent research unit of MasterCard Inc. “They're not involved in it today.” The U.S. Department of Justice announced July 1 that Visa had changed its rules to allow PINless debit card transactions when the signature requirement on signature-based debit card purchases is waived. The change came in the wake of a DoJ probe and parallel investigations by the attorneys general of New York, Ohio, and the District of Columbia (Digital Transactions News, July 2). Under its old rules, Visa had prohibited banks from allowing merchants to waive entry of a PIN for most non-Visa debit transactions initiated from Visa-branded debit cards, including small-ticket (under $25) transactions in certain merchant categories, and almost all Internet transactions, even if the signature requirement had been waived, according to the DoJ. A Visa spokesperson says Visa implemented the rule to address questions about what was and was not a Visa transaction, but the DoJ and the attorneys general saw it as giving Visa an unfair leg up on rival debit networks. The DoJ's reference to the Web, where PIN-based debit cards are virtually absent as a payment option for one-time purchases, triggered speculation that an online door might be opening for PIN-based debit cards. But the Visa change will have its most immediate effect on point-of-sale debit transactions. Visa check cards, like their MasterCard equivalents, typically carry the logos of one or more EFT networks, often the Visa-owned Interlink network but also First Data Corp.'s Star, Discover Financial Services' Pulse, Metavante Corp.'s NYCE, or Fiserv Inc.'s Accel/Exchange. Some merchants program their POS terminals for “PIN prompting” to initiate a PIN-based debit transaction, which costs merchants less than a signature-based one, when a dual-function debit card is swiped. In cases where the signature requirement would be waived, Visa debit card holders can now swipe their cards without having to take the extra step of entering a PIN. Issuers will need to inform their cardholders about how such options work, according to the Visa spokesperson, and merchants that make non-Visa networks their default debit card choice will need to give cardholders the option of using Visa if they want, according to a release from the D.C. attorney general's office. Roth sees few consumers caring about the issue. So while a legal impediment to PIN-debit has been removed?something of concern to competition authorities?the practical effect will be small, she predicts. But PINless debit is evolving quickly, adds Roth's colleague, Brian Riley, TowerGroup's director of bank card research. “It's a very new area,” he says, noting that Interac, Canada's national PIN-debit network, is upping its threshold for PIN entry to $50. While Interac doesn't operate directly in the U.S., its change shows how a network can make POS PIN-debit more attractive to consumers and merchants. Regarding PIN debit on the Web, however, the EFT networks still have the same operational concerns they had before the Visa rule change, issues that have largely prevented PIN-based debit cards from gaining any measurable share of e-commerce transaction volume. They include complicated connection issues and risk controls that would be employed should PIN authentication be waived for one-time retail purchases. With PIN entry on computers presenting high operational and marketing hurdles, those kinds of concerns have largely confined online PINless debit to bill payments, a low-risk category because of the pre-established relationship between biller and customer. “The EFT networks have been very conservative,” says Roth. She adds that the Visa rule change “is a good thing, but as far as opening up all kinds of doors, I don't think so.”