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Two separate PIN-debit pilots planned by the Accel/Exchange and NYCE, electronic funds transfer networks, face a series of major challenges, including offering competing systems when merchants would prefer one system to facilitate the transactions, analysts say.
Industry observers say consumer reluctance to use debit card PINs when shopping online and the possible refusal of card issuers to participate could kill the pilots while they are in their infancy.
Many consumers historically have feared using their PINs online for security reasons, and issuers receive less interchange revenue from PIN-debit purchases than from credit or signature-debit transactions.
But the EFT networks are motivated to capture a percentage of the $200 billion consumers spend annually online, and Web merchants may be interested in accepting PIN-debit transactions to reduce their card-acceptance costs (ADN, 11/20).
Indeed, such polarized views regarding PIN-debit use for shopping online could make it difficult for the efforts to move beyond pilots and into actual rollouts, contends Adil Moussa, an analyst with Boston-based Aite Group.
"There are two extremely motivated parties involved with making this work, and two who are not motivated," contends Moussa. "In order to make something like this work, you have to get everyone motivated."
Consumers and merchants can benefit from PIN-debit use online, says Tim Sloane, director of the debit service at Mercator Advisory Group in Maynard, Mass.
In the end, though, the real challenge will be to create one online PIN-debit system across the board, he says.
"You're not going to be able to get through the merchants' resistance to make significant modifications to their online portals to support two services," Sloane says.
Companies Schedule Pilots
For its pilot, scheduled to begin before the end of the year, Accel/Exchange will use technology from Acculynk Inc., an Atlanta-based company that enables PIN-debit use on the Internet by integrating its service into a merchant's online-checkout system.
The Morris Plains, N.J.-based EFT network's service will enable consumers to enter their PINs on a virtual PIN pad that appears on the computer monitor during checkout. NYCE, based in Secaucus, N.J., is piloting SafeDebit, which creates virtual debit card information for one-time use and automatically fills in the required payments fields on the merchant's checkout screen.
No PIN is required to make purchases.
The NYCE pilot is scheduled to begin in the first quarter 2009. Milwaukee-based Metavante Corp. owns NYCE.
Both methods have their disadvantages, says Les Riedl, president and chief operating officer of Alpharetta, Ga.-based consulting and research firm Speer & Associates Inc.
"The issue we continue to bump into is the consumer resistance [to entering a PIN] on the Internet," Riedl says. "While PIN-debit has been very successful at the physical location, it won't necessarily translate to the Internet."
Consumer behavior and security concerns may determine the fate of PIN-debit on the Internet, Riedl says.
"Consumers understand there is greater protection related to the credit card," he says.
The other side of the equation is consumer demand and interest, the lack of which has been and continues to be a major issue in North America regarding the use of PIN-debit cards online, Riedl says.
Acculynk believes there is consumer demand, based on the 350 million active U.S. debit card users, according to Nandan Sheth, the company's president."
Plus, this payment type requires no enrollment and replicates the familiar point-of-sale experience [found at brick-and-mortar merchants] at the online checkout," Sheth contends.
NYCE's SafeDebit system presents its own problem because it involves a complicated procedure, Riedl says.
During the checkout process on a participating merchant's Web site, purchasers are transferred to a participating financial institution's Web site.
There, they can log in as they normally would to bank online and choose SafeDebit for their payment. SafeDebit then creates the virtual debit card information for one-time use.
"If you look at the additional steps that will be involved in doing that type of transaction versus using a credit [or signature-debit] card, why would anyone do that?" Riedl asks rhetorically.
NYCE contends the extra step will quell consumers' card-security fears.
"The customers are happy because they are not exposing any traditional payment information over the Internet in any way that would be different from e-banking," Steven Rathgaber, NYCE president and chief operating officer, tells ATM&Debit News.
Rathgaber has no allusions about the rate of consumer adoption, but "I do think there is a market out that is really ready for this type of offering. There is a consumer population that is looking for ways to do more-secure online payments."
PIN-debit use online has a chance, but the right rewards must be applied to the service to draw consumer interest, contends Aite's Moussa.
Merchant-based rewards may spur consumer interest, Moussa says. "Merchants can say use [PIN debit] and accumulate points when you come shopping here,'" he says. "That's a very smart way to get you to change behavior."
That kind of rewards scheme may be an option as both pilots involve some major merchants.
The Accel/Exchange pilot will involve at least four merchants with annual sales, ranging from $15 million to $250 million, Sheth tells ATM&Debit News.
Rathgaber says a "major" merchant will be involved with SafeDebit. Neither company released further details about the merchants.
If the pilots are successful, Sheth and Rathgaber believe everyone benefits.
In Accel/Exchange's case, more than 80 million consumers who only have cards that support only PIN-debit transactions will be able to transact online for the first time.
"It also brings to merchants a mass-market emerging payment type with over 350 million active cards poised to deliver break-out adoption through a combination of merchant steering and incremental transactions," Sheth says.
This is NYCE's second foray into attempting to enable PIN-debit purchases over the Internet.
SafeDebit initially used a CD-ROM to provide PIN information.
Things have changed in the last eight or nine years since that service, Rathgaber says. "You have a consumer population that is very Internet-savvy but are not making as many purchases as merchants would like because of security concerns," he says. ATM
