Atlanta, GA, June 13, 2011 — With the defeat of the Tester-Corker Amendment, implementation of the Durbin amendment is now a certainty. E-Commerce merchants must respond to resulting issuer-driven changes affecting the current payment mix.
The Dodd-Frank Act provisions pertaining to debit interchange continue forward as the market awaits the Federal Reserve Board’s release of the final interchange rates within the next few weeks. The resultant reduction in Issuer revenues will have Issuers focusing away from signature debit to credit and PIN-only debit cards. E-Commerce merchants must enable PIN- only debit quickly and take advantage of the ability to steer consumers to the lowest cost payment type.
If they act soon, online merchants can take advantage of this new legislation. "PIN debit is clearly the answer to Durbin" says Corey Tisdale, CEO of ShoppersChoice.com. "The interchange and fraud rates on PIN debit are lower than credit cards, and most consumers already associate using a PIN number with using a debit card. The PaySecure graphical PIN pad is a seamless and secure way to take advantage of Durbin’s lower transaction fees."
While feedback provided during the comment period is anticipated to lead to a revision of the originally published rates, those rates are a good reference point for understanding how financial institutions and merchants will align themselves in the new environment. Both financial institutions and E-commerce merchants must be poised to take action to maintain both their customer bases and their bottom line. Financial Institutions will issue more PIN /ATM-only cards.
For the majority of issuers, the margin compression of going from approximately 170 basis points (bps) in card not present interchange to a currently targeted cap of $0.12 (~27bps) makes online signature debit economically unviable because of the fraud costs. In 2010, Cybersource reported average fraud losses of 90 basis points for E-commerce transactions. On a per-dollar basis, signature debit fraud losses are 3.75 times higher than PIN debit losses at the POS.
Merchants who have not enabled PIN debit for E-commerce will be scrambling.
As financial institutions increasingly issue PIN-only debit cards, E-commerce merchants will need to be able to capture those transactions or risk losing that customer segment. Financial Institutions and national payment networks may seek to shift consumers from debit to credit.
To maintain revenues across the spectrum of payment cards, banks may be forced to increasingly steer credit worthy consumers to credit cards. This is especially relevant in an E- commerce context where fraud and chargeback handling costs make the usage of signature debit cards unattractive for banks.
E-commerce merchants will respond by steering consumers to PIN-only debit.
As financial institutions promote credit, merchants have the ability and economic incentive to steer customers back to lower risk and cost tender types. With the advantages provided by Internet PIN debit, namely reduction in fraud and chargebacks, merchants will improve their economics further by steering to internet PIN-debit.
Prior to Durbin, most online merchants captured debit card transactions as signature debit Card Not Present transactions. Post-Durbin, merchants will seek solutions for online PIN debit authentication. PaySecure, the internet PIN debit solution provided by Acculynk, is the only currently available alternative mimicking the familiar ATM PIN pad that is secure and seamlessly embedded in the merchant check out. PaySecure has gained widespread adoption and is readily available to millions of consumers and thousands of E-Commerce websites. Consumers’ adoption of the online PIN pad at 90% is comparable with PIN adoption in store.