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PIN debit: Facing up to consumer needs

By Paul Rasori

Consumers are increasingly turning to debit cards over cash, checks and, in many instances, even credit cards, and more prefer PIN debit over signature debit. So why do so many merchant locations fail to provide a PIN entry device for their customers?

As a merchant level salesperson your merchant customers are more at risk for lost sales if they don't use customer-facing payment solutions that present a PIN debit option to shoppers.

In 2004, the number of transactions made using debit cards exceeded that of credit cards for the first time and by 2009 will account for 57.9% of all card-based purchase transactions.1

In just a few short years consumers have become accustomed to using debit cards as a replacement for cash, regardless of the transaction amount.

Although credit cards remain the predominant choice for high-ticket items, purchase volume using debit cards is expected to nearly double from $729 billion in 2004, to more than $1.4 trillion in 2009.

For the 2005 holiday season, Visa International reported that cardholders made more than half of their transactions (57%) using debit, compared with 54% of transactions in 2004.

According to the annual STAR Consumer Payments Usage Study, conducted by an independent research firm and released in July 2005, consumers who use debit cards for purchases spend 32% more compared with cash and 24% more compared with checks.

For merchants, the benefits of making debit purchases include not only increased customer satisfaction, but also higher per-customer revenue.

Furthermore, according to the STAR research, nearly half of consumers surveyed prefer the PIN-secured method, compared with just under one-third who prefer the signature-based method.

Survey respondents largely cited increased security as the number one reason for choosing to use their PINs to make purchases.

With that strong preference from consumers in mind, educate your merchant customers to adapt to PIN-based debit with PIN-entry solutions.

Shoppers want to be able to pay by cash, check, credit card, debit card or any payment method that may come along in the future. If retailers don't have what consumers want, consumers will take their business to a competitor that offers their favored payment option.

By providing consumers with the PIN debit option, a solution that half of debit card users favor, merchants will ensure maximum consumer satisfaction and revenue.

Driving the growth

Several factors are driving the strong growth of PIN-based debit. Consumers appreciate the budgeting control that debit gives them, as opposed to credit card purchases, which can be a shock when a statement arrives 30 days later.

Retailers are attracted to PIN-based debit because the cost of transactions is substantially lower than with credit card transactions for purchases of about $27 or more.

Beyond debit, other PIN-based transactions are also increasing. Most states have mandated that electronic benefits transfer (EBT) payments for programs such as food stamps and Temporary Aid to Needy Families (TANF) become card-based.

Delivering these benefits electronically can be more convenient for program participants and is significantly more cost-effective for government agencies and retailers.

In addition, electronic delivery affords retailers and consumers greater security than paper-based programs.

PIN-entry options

There are many reasons for pushing PIN-based systems. Of course, no one-size-fits-all solution exists. Being able to offer merchants a variety of PIN-entry options, including the following, will ensure maximum adaptability:

Terminal-driven PIN pad peripherals

Compact PIN pads that attach to existing payment terminals and take up little counter space are a quick and easy way to equip merchants for PIN acceptance.

Customer-activated PIN pads

Once seen only in supermarkets and high-end department stores, consumer-activated facing terminals that integrate with cash register systems are showing up in new locations, such as in McDonald's restaurants.

An attractive benefit for merchants is that consumers initiate their card transactions (both credit and debit) while the clerk rings up the order, thus eliminating counter wait times and the need for consumers to hand over their cards.

PC-integrated PIN pads

PC-based payment processing is attractive to a growing number of storefront merchants; especially appealing is a bundled solution that includes hardware and payment processing software.

Merchant incentives

A number of options exist to equip merchants with customer-facing debit solutions. There are big incentives for them to make the switch. These include:

  • Virtually guaranteed funds as debit cards are tied to actual bank accounts
  • Reduced chargebacks
  • Dramatically lowered interchange fees
  • Faster checkout as consumers no longer need to sign a slip and hand over a card
  • Replacement of check payments, thus reducing risk.

Not only will merchants reduce costs and experience increased per-customer purchases over cash and checks, but they'll also enhance the consumer experience dramatically. Shoppers will not have to hand over their cards; they'll be able to ask for cash back with their transaction; and they'll walk away with greater loyalty to merchants who provide them with their preferred payment options.

Paul Rasori is VeriFone's Vice President for North America Marketing and plays a key role in helping VeriFone customers integrate current payment and communication technologies. He can be reached at .

Article published in issue number 060201

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