PIN payments and COVID-19: No longer a touchy subject
In the early days of the pandemic, when consumers seemed loath to touch cash or a PIN pad, it seemed that PIN authentication might have had few days left. But that hasn't been the case.
Independent PIN debit networks say they have kept pace with current technology and are prepared to accept transactions through any platform — with their focus and emphasis remaining on security and common standards, as well as the ability for merchants to choose their networks for transaction routing without undue influences from the major networks.
Near Field Communication technology seemed poised for an uptick in adoption, mainly for its contactless capabilities. But that notion was based on the premise that most consumers would never again feel comfortable touching a PIN pad for fear of spreading the virus.
"Some in the industry make the argument that people don't want to touch anything, and we're not sure if that is their first concern in dealing with COVID-19," said Patrick Dix, vice president of strategic alliances for debit network Shazam. "The idea that merchants aren't doing enough to make it safe for their customers is almost insulting because they are doing such a great job of covering or disinfecting PIN pads to make customers feel safe."
While inputting a PIN on an attached pad at the POS or ATM brings customers in contact with something others may have touched, it never became a point of major concern among medical experts in terms of passing the virus.
Plus, PIN debit networks say they were already prepared for a shift to contactless payments.
"We are at least five years ahead of where we would have been with contactless had we not had the pandemic, but the PIN debit networks are ready for that," Dix said. "We have the ability, today, to accept all of those transactions as our dual message or signature transaction is set up and working at the POS, as well as our PINless debit transactions."
PINless debit was introduced as a way for the independent networks to be able to play in e-commerce, said Julie Conroy, research director and fraud expert with Boston-based Aite Group. "We definitely have seen some of those folks (networks) gain some traction because the merchant gets to choose where to route — and the largest, sophisticated e-merchants will choose the cheapest transaction every single time," Conroy added.
Data this month from credit union payments service organization PSCU revealed debit card spend has been well above last year's results. Pre-Thanksgiving week numbers showed debit purchases up 18%, well above the four-week average of 14.4%. Contactless debit transactions, as a percent of card-present activity on contactless debit cards, doubled from earlier in the year to 17.5%.
Debit mobile wallet transactions were up 62% over the previous year for that week, with results representing six supported mobile wallets — Apple Pay, Fitbit Pay, Garmin Pay, Google Pay, LG Pay and Samsung Pay.
On Cyber Monday, debit saw 48.4% of purchase volume and 34.2% of transactions in the card-not-present category.
Data like that indicates the PIN debit networks can handle tokenized or e-commerce transactions, thus making it seem odd to them that anyone would suggest the onslaught of COVID and the technological responses would mean use of PIN may be less important or, worse, not of value any longer.
"What we should be asking is how do we take a technology like PIN that has served the industry very well for the last 40 years and advance it?" Shazam's Dix asked. "There have been no statistics that I have seen that say anything other than the PIN protects for fraud better than anything else right now."
That solid foundation is built on the fact that PIN, as an authentication method, is based on an industry standard that everyone can use, Dix noted. "I think, going forward, the industry has to wrestle with how we are going to assure that all of these other technologies, like contactless, tokenization and e-commerce have that same kind of interoperability and ease of use [as PIN]," he said.
The global brands have implemented security specifications that enhance payment security "but do so to the disadvantage of U.S. debit networks," Paul Tomasofsky, executive director of the Secure Remote Payment Council, wrote in a PayThink submission to PaymentsSource.
He points to EMVCo's payment tokenization specification, which has been promoted internationally as an interoperable method. "Yet, global brand implementations in the U.S. of this specification have limited its use to restrict routing to just the network provider that is associated with the owner of the tokenization implementation," Tomasofsky added.
Ultimately, the PIN debit networks would lag behind in transaction volume mainly because of routing rules and restrictions, as opposed to any shortcoming that PIN might have as technology advances in the wake of the pandemic, Tomasofsky noted.
Even before COVID was a factor, the Federal Trade Commission started an inquiry into Visa and Mastercard's debit transaction routing process a year ago, in what was seen as an investigation into how advanced payments technology was affecting Durbin amendment compliance. Durbin, established during the transition to EMV in the U.S., calls for merchants to have at least two network routing options on debit transactions — thus giving Shazam, Star, Pulse, NYCE and other independent networks equal footing with the major brands.
Two years ago, in a move to protect signature transactions and their higher interchange, Visa and Mastercard signed exclusive agreements with the nation's largest debit card-issuing banks. The agreements with Bank of America, Wells Fargo and Wachovia Bank, which Wells had acquired, prohibited bank customers from using their cards for PINless debit transactions.
Even before that, PIN faced challenges. PIN transactions have traditionally been a little trickier for online shopping, mainly because acquirers and ISOs feared fraudsters could obtain PINs entered for e-commerce transactions.
The use of PINs for mobile or online transactions accelerated through technology that established PIN on Glass and PIN on Mobile, which provided a way for consumers to use their PIN debit cards through mobile wallets or payment apps. PIN on Glass addressed the use of PIN on POS terminals that used touchscreens, while PIN on Mobile brought on a less expensive way to accept PIN transactions, opening the door for merchants to establish a POS through their own smartphones.
Biometric authentication figures to play an even bigger role in the near future for contactless payments, though it is a technology that the PIN debit networks are ready to embrace — if it is established as an authorization method through common standards, much in the same way PIN acceptance is.
This month, MyPINPAD made an advancement in mobile contactless technology, getting PCI certification for its process in which merchants can accept PIN payments on their own phones.
The technology stresses the contactless payment option, which means many lower-value transactions would not even call for a PIN for authorization. But it also establishes a less expensive option for merchants to accept PIN when needed and allows the customer to enter the PIN on the merchant phone.
"Ultimately, can merchants or EFT (electronic funds transfer) networks start to push the ability to do PINs on mobile phones and online, a similar kind of utility, in a sort of one last attempt to change history by battling the anti PIN forces at Visa," said industry analyst Steve Mott, principal of BetterBuyDesign. "All of this is working well in other countries that have tried it, as Square and others can be proponents of this."
The bottom line in the PIN debate has always been that Visa and Mastercard don't like losing up to 10% of POS transactions to the EFT networks, Mott contends.
"The counterargument by the PIN networks is that PIN is more secure and, importantly, has fewer chargebacks," Mott added. "The research has been consistent the last several years in showing this is the case."