Financial institutions that are not exempt from the Federal Reserve Board’s reduction in debit card interchange might find themselves pushing Internet PIN-debit technology as a way to reduce fraud and maximize revenue, an electronic funds transfer network executive contends.
“Those large issuers that fall into the nonexempt category have the impetus to really try and reduce their fraud costs, even more so now that they have a ceiling on interchange fees,” Dan Kramer, senior vice president of marketing and merchant services for the Shazam network, tells PaymentsSource.
The Fed in June decided to cap both PIN and signature-debit interchange at 21 cents per transaction, though it gave banks some leeway to charge more if they meet certain fraud-prevention standards (
Shazam is the only network that publicly supports Internet PIN-debit technology from Acculynk Inc. and Adaptive Payments.
In January, Shazam made a strategic investment in Adaptive (
Acculynk enables consumers to use PIN-debit cards to make purchases online by integrating its PaySecure software into a merchant’s online-checkout system. After a consumer enters his card number into a designated field, the system will determine if the card is eligible to be used with a PIN. The consumer has the option to complete the purchase as a signature-debit transaction or as a PIN-debit one.
A virtual PIN pad that appears on the screen scrambles the numbers as a safety precaution each time the consumer enters a digit. The issuing bank’s brand also appears at checkout, providing additional peace of mind for the consumer.
Adaptive uses what it calls a five-factor authentication process that combines cardholder information and transaction data with the PIN consumers are accustomed to using at the point of sale or at ATMs. The technology also validates a consumer’s Internet protocol address and phone number used in the transaction.
Merchants integrate the E-commerce Checkout system into their checkout software. To complete a transaction, consumers enter their phone number in a dedicated field on the retailer’s checkout page. An automated system then calls them to verify the transaction details, and they enter their card PIN using the phone to complete the transaction. A hardware-security module on Adaptive’s back-end system encrypts the PIN before Adaptive sends the transaction information to a payment gateway to begin the processing cycle.
Shazam has seen fraud account for as much as 8% of a bank’s overall signature-debit activity and less than 0.1% of PIN-based transactions, Kramer says.
“It behooves [financial institutions] to implement to push PIN-debit as much as possible in order to bring those fraud costs down,” he says.
Banks will see reductions in the top-line revenue thanks to reduced debit-interchange rates, but “their bottom lines, if they push to reduce that fraud, should grow,” Kramer adds.
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