Increasing numbers of merchants now are allowed to process bank-issued debit cards online or over the phone without PIN validation. Those merchants qualified to accept PIN-less debit payment can take advantage of all-in costs, which can be far below the expense of a credit card or a debit card transaction processed through the credit card networks.
Electronic Payment Exchange (EPX) is one of a very few payment processors technically set-up and certified to submit “PIN-less” debit transactions directly to the three electronic funds transaction (EFT) networks that currently waive PIN validation for certain card-not-present transactions: STAR, Pulse and NYCE.
In a PIN-less debit transaction, a customer supplies his/her bank ATM card information to make a web or phone payment to an eligible merchant. The debit is linked to the customer’s bank account, but normally includes a Visa or MasterCard logo. Before the transaction, the cardholder is given the choice of using the card as a “signature debit” transaction, or a PIN-less debit payment. If it is a signature debit transaction, the transaction is processed through the Visa and MasterCard networks without PIN entry, just like an online credit card transaction except that the funds are deducted directly from the cardholder’s depository account, not billed to the customer by the bank. If the customer chooses to make a PIN-less debit transaction, the transaction is routed by EPX directly to the EFT network with which the card issuing bank has a processing agreement. As with any ATM or debit transaction, PIN-less card transactions result in funds deducted in near real-time from the cardholder’s posted bank account balance.
Since there is greater inherent risk of loss from a transaction without PIN validation, the EFT networks limit the privilege of PIN-less debit transaction processing to a range of merchants within authorized industry sub-sectors. The transactions from permitted sectors are assumed to be safer because these businesses commonly take payments from known customers for routine billings.
The list of permitted industry sectors varies by EFT network. At a minimum, the list includes:
Government agency payments (taxes, fees, fines and penalties, etc.)
Education providers (tuition payments)
Insurance providers (property, casualty, health and life)
Closed-end loan payments (mortgage and motor vehicle)
Rent/lease payments
STAR and NYCE allow a somewhat broader range of merchant types to submit PIN-less debit transactions than does the Pulse network. The list of allowed merchant types is expanding steadily as the EFT networks gain experience from PIN-less transactions.
Each EFT network has a distinct schedule of fees and policies for PIN-less debit transactions. The fee calculations are a bit complicated because they can vary by the specific SIC code, whether the merchant is in an “emerging” market, and because of the differences in pricing strategies among the networks. The greatest comparative advantage over credit card rates comes when a customer chooses to make payment with a STAR- or NYCE-affiliated debit card and the billing amount is higher than $100.00 (as often is the case for utilities, insurance companies, property manager and other favored business segments).
For comparison, consider a $200.00 online or phone credit card or “signature debit” transaction versus a PIN-less debit payment. Processed as a credit card, the merchant’s rate for a non-face-to-face transaction might typically be 2.10% or more of the face amount, plus $0.20 per transaction. The total cost to the merchant would therefore be $4.40. If the PIN-debit were accepted by the STAR network, the highest fees would be 14.5 cents for the transaction plus 0.65% on the dollar amount – but the total is capped at $1.00 in percentage fees. Therefore, the total cost of that PIN-less debit transaction would be $1.45 – a savings of about two-thirds over a credit card or signature debit transaction in this scenario.
The savings realized from PIN-less debit quite case-specific to the network, merchant type and transaction size. For instance, if the transaction were run on the NYCE network, the cost would be fairly comparable to STAR for that size of transaction. However, if the card happened to be Pulse-affiliated, the overall fees would compare more closely to the cost of credit card or signature debit processing. In 2009, Pulse (owned by Discover) removed its ceiling on the percentage rate charged for PIN-less debit transactions, and the percentage fee is about a third greater than STAR or NYCE.
The network to which each transaction is routed is determined by the bank that issued the debit card. Each debit card issuer has a processing agreement in place with one or another EFT network. Most issuing banks are affiliated with one of the big three independent networks (STAR, Pulse or NYCE). If the card tendered is not one of their own, these EFT networks route transactions to the correct network.
PIN-less debit transactions differ from credit card, signature debit, or ACH transactions in several other ways, including:
EFT rules require that the customer with a branded debit card be given the choice of processing their debit card as a PIN-less transaction or a “signature debit;”
PIN-less transactions post against the customer’s depository account in near-real-time through the EFT networks, whereas an ACH payment may take 2 or more days to post.
Authorization codes are not always received for PIN-less transactions, but such codes – unlike with credit card transactions – are not required for funding of the PIN-less debit transactions.
Account solvency is immediately determinable. However, merchants assume the risk of non-sufficient funds (“NSF”), stop payment, or fraudulent transactions — just as would be the case if they processed a check or ACH transaction.
It is unnecessary to request a capture of the transaction since the transaction is authorized by, and the funds moved by, the EFT networks
For a credit card transaction, you can typically process an authorization reversal. This is not the case with a PIN-less debit transaction
There is no credit feature for PIN-less debit. Refunds are possible only by issuing the customer cash, check, store credit or other forms of reimbursement
PIN-less cards do not a accrue rewards benefits as often
Some PIN-less debit can provide significant cost savings and other advantages for authorized merchants, if those merchants have the sophistication and discipline to proactively encourage consumers to pay with EFT debit cards that offer the greatest marginal transaction savings.
Merchants can learn more about PIN-less debit transaction from EPX by contacting sales@epx.com or an EPX account manager.
– Charles Crawford, EPX EVP for Strategic Development
More Merchants Taking Advantage of “Pin-Less” Debit Transactions to Lower Transaction Costs
Wednesday, December 30th, 2009Increasing numbers of merchants now are allowed to process bank-issued debit cards online or over the phone without PIN validation. Those merchants qualified to accept PIN-less debit payment can take advantage of all-in costs, which can be far below the expense of a credit card or a debit card transaction processed through the credit card networks.
Electronic Payment Exchange (EPX) is one of a very few payment processors technically set-up and certified to submit “PIN-less” debit transactions directly to the three electronic funds transaction (EFT) networks that currently waive PIN validation for certain card-not-present transactions: STAR, Pulse and NYCE.
In a PIN-less debit transaction, a customer supplies his/her bank ATM card information to make a web or phone payment to an eligible merchant. The debit is linked to the customer’s bank account, but normally includes a Visa or MasterCard logo. Before the transaction, the cardholder is given the choice of using the card as a “signature debit” transaction, or a PIN-less debit payment. If it is a signature debit transaction, the transaction is processed through the Visa and MasterCard networks without PIN entry, just like an online credit card transaction except that the funds are deducted directly from the cardholder’s depository account, not billed to the customer by the bank. If the customer chooses to make a PIN-less debit transaction, the transaction is routed by EPX directly to the EFT network with which the card issuing bank has a processing agreement. As with any ATM or debit transaction, PIN-less card transactions result in funds deducted in near real-time from the cardholder’s posted bank account balance.
Since there is greater inherent risk of loss from a transaction without PIN validation, the EFT networks limit the privilege of PIN-less debit transaction processing to a range of merchants within authorized industry sub-sectors. The transactions from permitted sectors are assumed to be safer because these businesses commonly take payments from known customers for routine billings.
The list of permitted industry sectors varies by EFT network. At a minimum, the list includes:
STAR and NYCE allow a somewhat broader range of merchant types to submit PIN-less debit transactions than does the Pulse network. The list of allowed merchant types is expanding steadily as the EFT networks gain experience from PIN-less transactions.
Each EFT network has a distinct schedule of fees and policies for PIN-less debit transactions. The fee calculations are a bit complicated because they can vary by the specific SIC code, whether the merchant is in an “emerging” market, and because of the differences in pricing strategies among the networks. The greatest comparative advantage over credit card rates comes when a customer chooses to make payment with a STAR- or NYCE-affiliated debit card and the billing amount is higher than $100.00 (as often is the case for utilities, insurance companies, property manager and other favored business segments).
For comparison, consider a $200.00 online or phone credit card or “signature debit” transaction versus a PIN-less debit payment. Processed as a credit card, the merchant’s rate for a non-face-to-face transaction might typically be 2.10% or more of the face amount, plus $0.20 per transaction. The total cost to the merchant would therefore be $4.40. If the PIN-debit were accepted by the STAR network, the highest fees would be 14.5 cents for the transaction plus 0.65% on the dollar amount – but the total is capped at $1.00 in percentage fees. Therefore, the total cost of that PIN-less debit transaction would be $1.45 – a savings of about two-thirds over a credit card or signature debit transaction in this scenario.
The savings realized from PIN-less debit quite case-specific to the network, merchant type and transaction size. For instance, if the transaction were run on the NYCE network, the cost would be fairly comparable to STAR for that size of transaction. However, if the card happened to be Pulse-affiliated, the overall fees would compare more closely to the cost of credit card or signature debit processing. In 2009, Pulse (owned by Discover) removed its ceiling on the percentage rate charged for PIN-less debit transactions, and the percentage fee is about a third greater than STAR or NYCE.
The network to which each transaction is routed is determined by the bank that issued the debit card. Each debit card issuer has a processing agreement in place with one or another EFT network. Most issuing banks are affiliated with one of the big three independent networks (STAR, Pulse or NYCE). If the card tendered is not one of their own, these EFT networks route transactions to the correct network.
PIN-less debit transactions differ from credit card, signature debit, or ACH transactions in several other ways, including:
Some PIN-less debit can provide significant cost savings and other advantages for authorized merchants, if those merchants have the sophistication and discipline to proactively encourage consumers to pay with EFT debit cards that offer the greatest marginal transaction savings.
Merchants can learn more about PIN-less debit transaction from EPX by contacting sales@epx.com or an EPX account manager.
– Charles Crawford, EPX EVP for Strategic Development
Tags: charles crawford, credit card processing, credit card processor, debit card processor, EFT, Electronic Payment Exchange, EPX, Mastercard, NYCE, payment processing, payment processor, PIN-less debit, PINless debit, Pulse, signature debit, Star, VISA
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