Debit executives from around the country gathered in Orlando last week for a meeting that highlighted both the technological promise and deep competitive divides within the industry.

"Debit is becoming the outward face of the bank relationship with customers," said Michael Weil, executive vice president at PSI Global in Tampa, a market research firm, "and it's very important to concentrate on those relationships ... because there are so many people trying to take a piece of the game." "You provide 24-hour access to your consumers, but they're not loyal. They want what they want, [and] they will go out and get what they need from whoever they need to," Mr. Weil said in a presentation at Faulkner & Gray's eighth annual Debit Card Forum.

The two-day event drew 245 paid participants.

The interchange tug-of-war between bank-card issuers and merchants has split the debit industry into two distinct camps. Banks tend to like the higher interchange revenue that comes with MasterCard and Visa debit transactions, also called off-line transactions. Merchants typically prefer conventional debit cards, or on-line cards, based on personal identification numbers, because they carry lower bank charges. And regional automated teller machine networks, watching the transaction volume of their legacy ATM business decline, have a vested interest in raising their point-of-sale profile.

The Internet could soon become a battleground in the debit war, as debit networks lead the way in exploring ways to make PIN-based debit work with the Web. But David Stewart, vice president of Global Concepts, a consulting firm in Norcross, Ga., said PIN-based debit and the Web are not a perfect match."I've never paid now for something I've received later," he said, referring to the real-time feature of PIN-based debit. He said the Internet has promise for PIN-based debit but that delays would have to be built in to prevent consumers from being billed before goods are shipped.

Though NYCE Corp. works on getting partners for its SafeDebit CD-ROM product and other networks study alternative ways to make conventional debit cards available on the Internet, some companies are focusing on biometric technology. A scanner attached to a personal computer could be programmed to recognize people by their irises, for instance.Everyone is trying to figure out what the killer app will be, said Debra Janssen, president and chief executive officer of eFunds Corp., a Milwaukee transaction processor that is involved in several initiatives. But biometrics, with its "Big Brother feel," may not be the answer, she said.

Debit "still has significant unrealized potential" in the United States, Mr. Weil said. "There's a boatload of cards in people's sock drawers … . The banks and the associations have to spend more time and money telling consumers they have those cards in their wallets and what they can use them for... Debit's only going to grow as fast as the involved parties will let it."Studies show debit's U.S. brand recognition is indeed anemic. A survey of 3,000 people by Boston-based Dove Consulting and the American Bankers Association in 1999 found that 32% said the presence of a keypad first prompted them to use their PIN-activated debit card. Twelve percent said it was a store clerk's influence.

Studies also indicate that consumers see little difference between pressing "ATM" or "credit" (credit being for debit card transactions processed through MasterCard and Visa) on the checkout keypad. A separate 1999 Dove survey of 1,400 people found that 36% would use debit if prompted by a store clerk and, once debit were selected, 68% would press "ATM" if asked.

In Canada, by comparison, Interac, the national ATM/debit network, is recognized as well as the Visa, MasterCard, or American Express brands, said Judith Wolfson, Interac's president. With no off-line debit cards in issuance, Interac's PIN-based debit card is now neck-and-neck with cash as the preferred payment method.

Many merchants are indeed critics of MasterCard and Visa's debit products and may try to leverage such clerk power. Retailers are worried that regional debit networks will become extinct and that Visa and MasterCard will become "virtual monopolies," said Barry Boerstler, executive vice president of Midwest Payment Systems Inc., the processing subsidiary of Fifth Third Bancorp of Cincinnati.Lorraine Fischer, a senior vice president at First Union National Bank in Charlotte, N.C., said her bank is losing money on some PIN-activated transactions and actively promotes use of off-line debit. "We are all in the business to make money and make profits," she said.

PIN-based debit is not all gravy for merchants, said Jonathan Palmer, president of Vital Processing Services of Tempe, Ariz. Mr. Palmer said that though merchants dislike the higher fees or chargeback risks associated with MasterCard and Visa debit products, they like the float. This is also an attractive feature of good old-fashioned checks.Because of the immediate debiting of PIN-based transactions, the acceptance rate is lower. "They want to make the sale. They don't want to turn customers down," Mr. Palmer said.

He suggested that acquiring banks guarantee payment to motivate merchants' use of PIN-based transactions, particularly on the Web.

Mr. Palmer also suggested using incentive programs, including cash-back offers - perhaps 25 cents a transaction - to make the payment method more appealing.

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