Is Now the Time for Online PIN Debit?

This session was presented by Mike Strada from Chase Paymentech. Mike is a fan of online PIN debit, especially the notion of giving merchants more choices. His discussion focused on the different options the 12 North American debit networks are exploring.

Several of the debit networks are exploring PIN debit, some aren’t. ACCEL, NYCE, PULSE and STAR are doing PINless debit for utility and other low risk payments. Mike explained that these are the 4 networks that are exploring PIN debit on the Internet. Three of these four (all except STAR) have recently announced PIN debit pilots.

Mike maintains that PIN debit for ecommerce transactions could provide some incremental sales lift for merchants, especially since 14% of debit cards are “ATM only” – i.e., they don’t have a MasterCard or Visa logo on them and thus can’t be used for general ecommerce transactions.

Mike explored the pros and cons of the four alternatives:

• Acculynk (formerly ATM Direct, previously owned by now-defunct Pay By Touch). ACCEL, NYCE and PULSE have all signed LOIs to do pilots with Acculynk. Mike thinks two more debit networks will announce pilots within the next 90 days.
• Safe-Debit (the same name of the program NYCE went to market years ago using a CD ROM token). This iteration is using Verient’s platform to redirect the user to the customer’s home banking site for authentication. In this case, the cardholder is sent a one time PAN for use at the merchant site. Hoping to do a pilot in first half of 2009. This, of course, requires a redirect which scares a lot of merchants due to the increased risk of abandoned shopping carts.
• Claerity – technology allows consumer to register cell phone number with their DDA FI. The bank, via the network, sends one time password back to cell phone which the shopper enters on merchant checkout page. Network compares the onetime password sent to cell phone with the one issued to the consumer. Not clear who will bear the cost of the SMS message. Hoping for a 2009 pilot, but unclear if on track.
• Home ATM – Canadian firm distributes USB PIN pad that has a mag-stripe card reader and encrypts data. Has a distribution agreement with Microsoft, but no announced pilots.

Mike acknowledged one of the big issues that Glenbrook encounters with our merchant clients – critical mass and the challenge of getting online merchants adopting two or three (forget four or more) different processes. Our clients tell us they’ll consider it when the networks adopting a particular approach/technology bring critical mass of cardholders in aggregate. My sense is that STAR has critical mass unto itself. The next 3 largest networks (assuming Interlink and Maestro won’t play) would need to converge on a solution to bring critical mass to market. Just my opinion, but Mike doesn’t think standardization will happen in the foreseeable future, and Paymentech has decided to move forward anyway.

Mike/Chase Paymentech is predicting that be the end of 2010, most of the major networks will implement online debit products (excluding, of course, Interlink and Maestro), with transaction pricing somewhere in between physical POS interchange and online Visa/MasterCard interchange.

Mike also predicted that by 2012, online PIN debit could be the most widely used payment mechanism on the Internet. The operating rules for handling online PIN debit transactions haven’t been worked out, but they’re working on it. He acknowledges that the rules really should be, and probably will be standardized across networks.

ChasePaymentech has agreed to do a pilot with Acculynk (and is looking for merchants to participate).

Of course there’s the fraud risk associated with these new products (Mike acknowledged it, but didn’t spend much time on this area).

Mike feels the consumer proposition is one of safety, security, and identity theft protection.

One question I have is whether 3D Secure technology could do just as well as the above four products/technologies mentioned above. Mike thought that it probably could, but he wasn’t aware that any of the debit networks had considered that path (could mitigate merchant adoption problem).

The merchants in the audience were somewhat skeptical on a number of fronts. For example, how to deal with split shipments that span the authorization time frames. They worried about consumer value proposition and recalled all the issues they encountered with 3D Secure, particularly how the banks/issuers didn’t do as good a job as they needed to educating their cardholders.