PIN Debit at the POS

Most of you have read that Walmart, Home Depot and Kroger have launched new litigation against Visa for “PIN” and Debit.  This issue is so complex it makes my head spin… For those unfamiliar with some of the basics see this article, my prior blog on PIN debit consolidation,  AT Kearney, Digital Transactions: PIN Debit Claw Back and Pinless PIN Debit.

My summary:

• Visa wants consumers to be able to chose whether to use either PIN or Signature. The driver behind Visa’s logic is both 1) Enabling Consumer Choice AND 2) Speeding up Contactless transactions (can you imagine forcing consumers to PIN after using ApplePay?).
• –update– 30 June. U.S. Court of Appeals rejects the 2012 swipe-fee settlement, originally valued at $7.25 billion, between the retail industry and payments companies Visa Inc. and MasterCardInc., calling the agreement “unreasonable and inadequate.” This gives new light to the PIN effort as part of a “stick” to re-invigorate IFR (Interchange Fee Regulation).
• Durbin allows retailers dual routing on debit. The top 20 debit retailers made investments here, including bi-lateral deals with top debit issuers (listed below) for both PIN and PINless PIN debit routing. Signature debit does not allow for the bi-lateral or for the routing flexibility of non-Durbin banks.
• WMT and other retailers created POS infrastructure to force PIN on 100% of debit transactions AND disabled signature debit for EMV cards through custom modifications to their payment terminal. Few merchants have the expertise to do this, so there will likely be few that can join the litigation in its current form(s).
• PIN Debit caries big cost advantages 50bps vs 130bps (see AT Kearney)
• Visa instituted fines for retailers that did not give choice
• Top PIN debit retailer ‘innovators’ are WMT, Kroger, Walgreens
• Retailers point out that PIN is more secure, and that rest of world (ROW) has enabled PIN. That is partially true, but in countries like the UK there are no PIN requirements for transactions under $25.. and issuers are free to enable consumers to purchase without a PIN (ex. US Consumer using card in Europe and without PIN).
• PIN is NOT the most secure form of payment security, ApplePay wins that award by combining tokens, biometrics and secondary forms of authentication (phone ID, location, …). Contactless is where networks and issuers want transactions to take place.. but merchants know consumers will shift preference to credit if they enable (higher costs).
• Retailers do not bear cost of fraud in most EMV transactions, thus the driver of their concern is not “security” but rather the ability to force consumers into PIN debit to enable off network routing.
• WMT and the other biggies really want the PIN as part of their legal and Congressional battles to get a “Durbin for credit” (like the EU) and reduce their costs. So what about us consumers?  Do we care?  I have zero liability for fraud, so I am in no hurry to remember another PIN. PIN enables a better legal/regulatory story for merchants: “there should be no interchange because you can manage fraud with a simple PIN”.  However all of the investments are going into mobile, and not this 30 yr old EMV construct. Networks will be able to show that ApplePay fraud is much lower than PIN (absent provisioning/issuance).
• EMV was slammed down both issuer and merchant throats by Joe Saunders…. Everyone is rather grumpy .. making investments in 20 year old technology that was designed for Europe’s inferior telecom infrastructure (auth without connectivity)
• Visa has right to mandate how its cards work…. Particularly allowing the consumers to choose how their card operates when it is BOTH an ATM/PIN card and a Debit Card. Merchants have right to refuse to accept (see Walmart Canada). From a network perspective WMT wants to prevent signature debit. Can you imagine how this will work with ApplePay? You tap.. then must PIN?