It's PIN Debit, Man

  The signs are growing that PIN debit may be about to gain momentum.
  Issuers traditionally have supported signature debit because of the higher interchange income it generates. As this month's cover story by Louie Burney notes, that gap has narrowed somewhat as the PIN-debit networks have raised their rates to compete.
  Now, a new report on debit card costs may cause issuers to re-evaluate their preference. First Data Corp. reported in November that financial-institution issuers pay about 50% less to support PIN-based purchases than for signature-based ones, 11.6 cents versus 22 cents on average. Moreover, the report notes, fraud losses are four-times greater for signature debit than for PIN debit. These numbers can have a significant impact on issuers' bottom lines.
  The one major downside to PIN debit is its relatively low acceptance. At First Data, for example, only about 25% of its merchant customers that have payment card terminals accept cards requiring PINs. That rate could change dramatically in the coming years as independent sales organizations and other sellers of payment card acceptance convince more merchants to embrace PIN debit, which consumers also prefer over signature debit.
  Bank card issuers are not the only ones experiencing a lift from the growing interest in PIN debit. Debitman Card Inc., a PIN-based POS debit network for retailers that uses the automated clearinghouse system to route and settle transactions, now says Wal-Mart Stores Inc.-the world's largest retailer-is accepting its cards. Wal-Mart operates more than 3,600 stores in the United States, including some 500 Sam's Clubs.
  No financial institutions receive interchange income from Debitman transactions. Instead, Debitman generates interchange for issuing merchants when their cards are used at other merchants' stores. Accepting merchants pay a flat 15 cents per transaction, relatively low compared with bank-issued debit cards. Issuing merchants get 6 cents to 9 cents of that amount depending on their issuing volume, and Debitman gets the rest.
  More than 200,000 store locations, including those operated by Walgreen Co. and CVS Corp. drug stores, Best Buy Co. Inc. and Kroger supermarkets, today accept Debitman cards. As more merchant processors begin to support Debitman, that number could grow dramatically as merchants look to reduce their card-related costs.
  The question is, will bank debit card issuers begin to support PIN-debit programs for similar reasons?
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