Debit's Future May Have Gotten Boost

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ATLANTA-First Data Corp.'s decision to support Acculynk Inc.'s PaySecure Internet PIN-debit payment system could give debit payments a boost at a time when financial institutions have doubts about the future of debit cards.

As merchants and issuers alike face the prospect of lower interchange rates for debit payments after recent regulation, an option such as PaySecure may hold more appeal to both parties as a way to promote debit payments, the companies say. In December, the Federal Reserve Board announced its proposal to cap debit interchange at 12 cents per transaction.

Under the Fed's proposed rate rules, PaySecure is "a very low-cost form of payment [for merchants], and it's very low-risk because the PIN is involved," Patricia Hewitt, director of debit advisory services at Mercator Advisory Group, told American Banker, an affiliate of Credit Union Journal. For issuers, "there is an attraction because issuers need to prove the value and continued value of their debit cards, and I think this shows that," she said.

First Data, a unit of the private-equity firm Kohlberg Kravis Roberts & Co., said it will give its merchant processing customers the option to activate PaySecure, which enables consumers to use PIN codes for debit purchases online when merchants integrate the software into their checkout process.

Cardholders use a computer's mouse to enter their four-digit PINs into an Acculynk virtual PIN pad that appears on-screen.

A Feeling Of Safety

"From a consumer perspective, entering a PIN is beneficial to make people feel more comfortable about" using PaySecure, said Beth Robertson, director of payments research at Javelin Strategy and Research.

First Data said it recognizes consumer adoption ultimately will determine whether merchants will embrace PaySecure.

"At the end of the day, it depends on what the consumer is comfortable using," Souheil Badran, senior vice president and division manager of e-commerce solutions at First Data, told American Banker.

Badran said PaySecure is an easy, understandable payment method for consumers shopping online. "We effectively have the same mechanism [PIN entry] popping up online," he said. "It shouldn't be strange to use, especially if you're dealing with a repeat customer."

First Data's objective to help its merchant partners mitigate risk and fraud, offer cost-effective payment services and expand the options consumers have available to them to transact online helped cement its agreement with Acculynk. "The voice of our customers was one of the big forces behind us selecting Acculynk," Badran said.

PaySecure's initial selling point when it was rolled out two years ago was that it offered merchants a less expensive interchange rate than with those the card networks apply for typical credit and signature-debit card-not-present fees.

Card-not-present signature-debit rates set by Visa Inc. and MasterCard Inc. typically range from 1.64% to 2.2% of the sale, depending on the type of transaction, according to Acculynk. The final price to merchants for PaySecure typically is 20% to 40% lower than what they would pay for card-not-present signature debit, Acculynk has stated in the past.

The electronic funds transfer networks set the PIN-debit interchange rates, which determine how much the issuer receives from the merchant's bank for the transaction. The acquiring bank then passes the expense along to the retailer as part of the discount rate, which also covers costs for processing and other services.

Though EFT networks have declined to disclose the rates applied to online transactions such as PaySecure's, the price is high enough to make it attractive to issuers, Acculynk said.

This was before the Dodd-Frank Act was signed into law last year, prompting the Fed's proposal to cap debit interchange rates at 12 cents. Acculynk said such a drastic cut will not affect how card issuers and merchants view PaySecure.

Acculynk's chief executive, Ashish Bahl, said he expects many First Data merchants to offer PaySecure based on his own past experiences. Over the past two years, Acculynk has met interested retailers only to later find they were associated with First Data, and PaySecure implementation was not possible because First Data did not support the payment option.

Acculynk, however, might need more than merchant adoption to convince consumers PaySecure is a legit and safe payment form, Hewitt said.

"The more important piece for consumers is if financial institutions are going to sanction it," she said. "I think that's more important in some ways than the merchants."

Indeed, Acculynk is seeking bank partners to support PaySecure, Bahl said.

Some 60 million debit cards are eligible for PaySecure, and Acculynk wants to boost that figure to up to 100 million by the end of the year by adding more EFT network participation and issuers.

Nine EFT networks support PaySecure: Accel/Exchange, Alaska Option, Credit Union 24, Jeanie, MasterCard Inc.'s Maestro, NetWorks Inc., NYCE, Pulse and Shazam. Acculynk is working on a deal with a 10th, undisclosed network, Bahl said.

Ironically, First Data's own Star network is not included in the Acculynk deal, and Acculynk is not involved in any active discussions with Star, Bahl said. Also noticeably absent is support from Visa's Interlink PIN-debit network.

Visa has said its issuers prefer that their customers use signature-debit or credit cards online because they generate more interchange income. That position could change if the Fed finalizes its proposed 12-cent cap because PIN-debit transactions are more secure.

Acculynk's First Data agreement also gives it exposure to additional merchant acquirers. First Data has partnerships with Bank of America Merchant Services LLC, Wells Fargo Merchant Services LLC and PNC Merchant Services Co.; Chase Paymentech Solutions, Elavon Inc., LLC Merchant e-Solutions Inc., JetPay LLC and Universal Air Travel Plan Inc. also offer PaySecure to merchants and airlines.

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