By Scott Henry
VeriFone
American consumers love debit cards. And according to a recent survey by Gartner Inc., they love PIN debit more than they love signature debit. That's a big reason why your customers should utilize consumer-friendly, secure PIN pads.
Gartner reported that an August 2007 survey of 4,500 online U.S. adults indicates consumers prefer alternative payment types that they believe are more secure.
"Despite significant marketing campaigns by banks and card issuers to steer consumers towards using debit cards with a signature - ostensibly so that the banks can earn more interchange revenue - consumers prefer entering their personal identification number (PIN) to pay for groceries with their debit card over all types of signature-based card payments, whether credit or debit," Avivah Litan, Vice President and Distinguished Analyst at Gartner, stated in an announcement about the survey.
That's bad news for banks that try to steer consumers to signature-based debit payments. Some of you, as ISOs and merchant level salespeople (MLSs), may also be leery about PIN debit due to limited recurring revenue.
But just as merchants can't risk losing customers to competitors who do provide a preferred payment option, you may be passing up increased equipment and recurring credit and signature debit processing revenue that will end up going elsewhere if you ignore this opportunity.
The 2007 Federal Reserve Payments Study, released in December 2007, found that the annual use of debit cards increased by about 10 billion payments from 2003 to 25.3 billion payments in 2006. "Debit cards now surpass credit cards as the most frequently used electronic payment type," the Fed said.
According to data in that report, by the end of 2006 the volume of PIN debit payments was rapidly gaining on signature debit, experiencing a compound annual growth rate of 20.6%.
There should be plenty of incentive for merchants to put PIN acceptance on their countertops once they understand the megatrends and cost advantages.
Consumers vote with their wallets. More specifically, they vote with a primary piece of plastic carried in their wallets. Since more payments are made with debit cards than credit cards, and more consumers favor PIN authorization over signature authorization, consciously or not, they are likely to favor establishments that offer PIN debit acceptance.
How soon these trends begin to show up on a merchant's bottom line is hard to predict, but ultimately it will result in lost sales for those who don't offer PIN authorization. Once customers turn to a competing merchant, it's much more expensive to win them back than it would have been to make a modest investment to retain their loyalty.
A multitude of options are available today for PIN debit acceptance. They can be relatively simple to implement, such as PIN pad peripherals that connect to existing terminals or electronic cash registers. They can be more sophisticated PIN pads with powerful processor and memory components and the capability to adapt to multiple forms of payment, including contactless.
Or, they can be sleek, ergonomic hand-over terminals with built-in PIN pads or even wireless handhelds suited to restaurant and other hospitality environments.
Whichever option is best for a particular merchant environment, security should be foremost among considerations. PIN pads being sold today must meet Payment Card Industry (PCI) PIN Entry Device (PED) security requirements.
Older devices in place can still be used (Pre-Visa PED systems will have to be taken out of service in 2010, according to current regulations), but there are much better alternatives available today, which should enable you to encourage replacement sales.
PEDs should accommodate consumer needs; the consumer should not have to adapt to a completely new interface in every location he or she shops.
The common thread for shoppers is, without doubt, the ATM interface. They have successfully adapted to it over the last two decades, and it doesn't make sense for merchants to try and create new behavior.
The latest PIN pads feature large backlit displays, large keypads, programmable function keys and more in one stylish, ergonomic device.
A merchant's countertop can become an indelible part of his or her brand. For the PIN debit customer, the card acceptance device can become an indelible part of that brand. An important part of the selling process is advising merchants on consumer sensitivities and the value of having a device that is consumer-friendly and expertly designed.
Mega-trends and consumer brand issues aside, the profit potential of PIN debit acceptance is a factor that any merchant should be able to grasp. The difference between PIN debit and signature debit to a merchant's bottom line is significant.
As the Boston Globe noted in a November 2007 story, "Banks prefer the credit option for debit cards because they make more money in fees.
"For a $200 transaction, for example, they make $1.99 if the customer chooses 'credit' and signs his or her name, according to one estimate, more than three times the 60 cents they make from customers who choose 'debit' and enter a PIN."
First Data Corp. noted that with PIN debit payments, "electronic deposits are made to the merchant accounts automatically, simplifying daily deposit reconciliation and improving cash flow."
A signature is also relatively easy to fake, compared to a PIN. So signature debit is much more susceptible to fraud and chargebacks.
Barring any major change in technology or consumer usage, PIN debit is on a trajectory to eclipse signature debit in the next few years. Putting your merchants in position to capitalize on buying patterns is a solid sales strategy.
Scott Henry is Director, North America Product Marketing, for VeriFone. He can be contacted at scott_henry@verifone.com.
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