It may take some time for the full effect of a new interchange-rate cap to affect consumer and merchant behavior, but PIN-debit network executives anticipate a positive outcome for their operations.
A result of the so-called Durbin amendment to the Dodd-Frank Act, the Federal Reserve Board’s new cap that took effect Oct.1 now means large issuers will receive about half of what they did previously in interchange revenue (
The interchange cap is designed to reduce costs for merchants and consumers, but it also created a greater premium on cost controls and fraud-risk mitigation for the networks, Dave Schneider, president of Houston-based Pulse, the PIN-debit network owned by Riverwoods, Ill.-based Discover Financial Services, tells PaymentsSource.
In addition, Pulse believes PIN-debit use will not lose favor with consumers because it is more efficient than signature debit when making payments, despite skepticism from issuers who have misunderstood the net value of PIN by not taking into account that it is less expensive and less likely to result in charge-backs, Schneider says.
“It’s an easier story to tell now, and the issuers are getting a growing realization that many prefer the payment method to be done with PIN,” Schneider adds.
Some of Pulse’s most recent marketing has catered to younger audiences in preaching the positive aspects of debit (
MasterCard Worldwide believes it has the industry’s fastest-growing debit program, touting its Maestro brand as the only “globally interoperable PIN point-of-sale network.” And that works in the company’s favor post-Durbin, Samantha Ross Saperstein, MasterCard group head, tells PaymentsSource.
The exclusivity provisions of the Durbin amendment, which require issuers to support at least two unaffiliated PIN-debit debit networks on their cards, present another potential positive for MasterCard, Saperstein suggests.
“The pending decisions by issuers, merchants and acquirers will influence routing and also ultimately determine how much opportunity we have,” Saperstein says.
As such, MasterCard continues to reinforce the value of PIN debit with consumers, issuers, acquirers and merchants by establishing more incentives to route transactions over the MasterCard network, Saperstein suggests.
Brian Riley, senior research director and analyst with Needham, Mass.-based TowerGroup, believes PIN-debit networks will work from a position of strength when making future pitches in the marketplace. In his view, the Durbin amendment actually ensures the future of PIN-debit networks because they can more easily react to low-cost margins.
“PIN-debit networks are in very strong position moving forward because of the network-exclusivity rules calling for more players,” Riley says. “Will signature debit die, or will it continue? The winner in totality won’t be known until we see how pricing shifts volume.”
Ultimately, PIN debit remains an effective way for merchants to accept payments because of speed and security compared with signature debit or credit cards, Riley adds.
“When I use my PIN-debit, it still only takes a couple of seconds to input it on the terminal pad,” Riley says.
On the downside, credit cards offer rewards and other values, whereas debit cards tend to be “very streamlined and very vanilla” and call for the cardholder to spend thousands of dollars to earn only $100 in reward points, Riley suggests.
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