PINless Debit Card Networks

The purpose of this article is to familiarize the key merchant services industry players with the advantages of integrating with PINless debit card networks.

The largest credit card associations, such as Visa and MasterCard, maintain large card networks through which payment card transactions can be processed. When a card transaction is processed, card network charges a certain interchange fee for handling of the transaction (more detailed information on transaction processing cost models and structure can be found in our respective article).

Some banks also created their own card networks called debit networks. For instance, every US-issued card, including those, carrying Visa or MasterCard logo, can be processed through at least two debit networks. Generally, a logo of a debit network, which can be used with a given card (for example, Plus, Interlink, etc.), can be found on the reverse side of the card. ATMs often work through debit networks as well, and usually, logos of supported debit networks are shown on the ATM.

Traditionally, there was an advantage for a merchant to integrate with PINless debit card networks, for several reasons, including funding delays. The primary reason, however, was considerable saving on the interchange cost as compared to the cost of equivalent transaction processed through Visa or MasterCard network.

In 2011, after Durbin Amendment (initially designed to reduce the burden of fees imposed by processors on merchants) was adopted, Visa and other associations were required by law to reduce the maximal interchange rate which they were allowed to charge for debit card processing.

If previously Visa could charge 2.5 to 3 % of transaction’s amount for debit card processing, after the Amendment the maximum interchange amounted to 0.95 %. After the Durbin Amendment was adopted the price difference for merchants integrating with PINless debit card networks versus regular card networks would only represent 10 to 20 basis points. As a result, some merchants, who were previously interested in and considered the prospect of PINless debit card network integration, changed their minds and lost their interest, because potential savings of 10 to 20 basis points could not provide a sufficient incentive (especially, for small and medium-sized merchants).

Although for small and medium-size merchants the advantage of PINless debit card network integration became really insignificant, on large processing volumes even 10 basis points still make a difference, especially in view of pricing wars, witnessed by modern merchant services industry.

Another advantage of debit networks, which still remains relevant, is that there is no policy around chargeback handling in PINless debit networks. If the transaction is processed, the funds cannot be charged back and the transaction cannot be disputed. Consequently, many companies (of all sizes), experiencing problems with high chargeback rates can still find integrations with PINless debit card networks. Even if transaction processing through PINless debit networks does not yield significant additional revenues, the option is still more relevant than processing through Visa and MasterCard networks. As we mentioned in some previous articles, 1 % of chargebacks can put the merchant into the Terminated Merchant File (TMF), and out of business. If some of the cards are processed through a PINless debit network, chargeback rates (as well as percentage of chargebacks resulting from transactions processed through regular Visa and MasterCard networks) decrease.

Conclusion

In spite of the limitations, imposed by the Durbin amendment, if you are a merchant, experiencing problems with high chargeback rates, and\or if you process significant dollar volume, PINless debit card network integration might still be a good solution for you.