A little-used debit format is gaining traction as an alternative to credit card payments, prompting Visa U.S.A. to clamp down on some billers.
The spat over PIN-less debit is another product of businesses' new ability to choose from many payment options to cut their transaction processing expenses. Though the number of PIN-less debit payments is quite low, industry watchers say it is clear that Visa sees the format as a threat to its credit card transaction volume.
Billers like the format because it is cheaper to process than credit card payments, and say that consumers appreciate the convenience of making payments through the phone or Internet with their debit cards.
And Visa has shown a willingness to invoke its rules and require billers to raise their fees for PIN-less debit.
The San Francisco credit card association contends that PIN-less debit can be confusing to customers who expect to earn reward points and are upset when they learn that is not the case.
Stacey Pinkerd, Visa's senior vice president for consumer debit products, said Wednesday, "We've had a number of complaints from cardholders and members about" PIN-less debit.
With PIN-less debit, people can initiate a payment by providing their debit card number to a biller. Because it is a debit transaction that moves across an electronic funds transfer network rather than a credit card network, the payment does not earn reward points, and the credit card company whose logo is on the front of the card gets no income.
James A. Hanisch, an executive vice president of the credit union debit network Co-op Network, said Visa's real aim is to protect its payment volumes. "What they're doing is trying to create a concern and confusion, when I don't think there's any cause for concern and confusion," he said.
Stan Paur, the president and chief executive officer of Pulse EFT Association, which is owned by Morgan Stanley's Discover Financial Services Inc., said the Houston network has offered PIN-less debit for nine years. "In the history of the program, I am unaware of any complaints by issuers regarding confusion to consumers," he said.
PIN-less debit transactions are a small fraction of debit volume - Mr. Paur said it is "probably one-half of 1%" at Pulse.
One reason for the low figures is that there are several limitations to its use. Typically, in-person debit transactions are authenticated when customers enters their PINs into a keypad, which is not possible over the phone or the Internet. PIN-less debit payments are authenticated instead through established relationships between the consumer and the biller.
Only certain types of billers can initiate a PIN-less debit payment, including utility companies, cable companies, schools, some government agencies, and credit card companies. People can use the format only to make one-time purchase rather than setting up recurring payments.
Richard K. Crone, the founder of Crone Consulting of San Carlos, Calif., said that despite these restrictions, "more billers are accepting it," and that is "increasing the demand."
Mr. Paur said demand for PIN-less debit has grown 200% in the past year on his network.
Steve Rathgaber, the president of NYCE, which is owned by Marshall & Ilsley Corp.'s Metavante Corp., said that PIN-less debit is "growing substantially, so we're very pleased with the acceptance of our product." He would not disclose the exact number of transactions but said "it's in tens of thousands."
Dominion Resources Inc., a Richmond, Va., gas and electricity company, has offered PIN-less debit since 2001.
Gwen Beadles, Dominion's director of customer billing and payment services, said in an interview Wednesday that she has never heard of any complaints or confusion on the part of customers. She said that only "a little over one-half of 1%" of her customers use the option. Customers are charged a convenience fee of $3.50 to make phone or Internet payments, using either a credit or debit card.
Ms. Beadles said that until a few months ago, however, the fee for PIN-less debit was just $1.95, versus $5.95 for credit cards, and its use was slightly higher (she could not say exactly how much higher).
Last year Visa contacted Dominion's payment processor, BillMatrix Corp., and reminded the company of a Visa rule that requires a biller's convenience fees to be the same for all of its payment options. The utility company changed its fee structures. "Naturally we wanted to continue to use the Visa card, so the convenience fee had to become the same," Ms. Beadles said.
Soon after, Ms. Beadles said, customers began to make more credit card payments.
Mr. Pinkerd said Visa has been contacting other billers and processors over the same issue for the past 18 months.
Tim Sloane, the director of debit advisory service for Mercator Advisory Group Inc., said that PIN-less debit could slash the cost of accepting electronic payments. "Visa and Visa banks are not blind to the lower interchange that PIN-less debit offers to utilities."
