Debit card transaction growth continues to outpace that of credit cards, but the struggling economy is starting to affect debit card sales volume and transaction activity. As a result, electronic funds transfer networks are seeking different ways to increase their switch volume, and some are looking to allow PIN-debit transactions to occur online.

Three EFT networks, including Houston-based Pulse, are set to pilot an Internet PIN-debit product from Atlanta-based Acculynk Inc. David Schneider, Pulse president, discusses this initiative and trends affecting EFT networks:

Q. How is the unstable economy affecting debit card transactions?

A. The economic environment is having a negative impact on the growth of debit-transaction volume as a result of lower retail sales. However, we believe debit has a bright future over the long term, although it would be reasonable to assume that the rate of growth in the future may slow as the debit market matures. Consumers continue to shift away from cash and checks in favor of cards for many transactions, including bill payments and small-ticket purchases. In these difficult times, debit can be especially important because many consumers view debit as a great tool for helping them track and manage their expenses.
Regarding the Pulse network specifically, we are continuing to grow despite the recent economic downturn. Our results for the first quarter of 2009 showed 11% growth, in terms of both aggregate (ATM and purchase) transactions and dollar volumes, compared with the first quarter of 2008.

Q. Now that Pulse has announced that it will pilot Acculynk's Internet PIN-debit technology, what are you expecting from this product?

 A. We believe PIN-debit transactions on the Internet could provide significant benefits to cardholders, e-commerce merchants and financial institutions by expanding the use of debit and reducing fraud and cardholder disputes. Many consumers do not have the option of utilizing e-commerce because they do not have signature-enabled cards. Other consumers may be reluctant to engage in e-commerce because they have concerns about the security of these transactions.
We are planning to pilot Acculynk's technology with a small number of merchants and financial institutions on the Pulse network. The goal is to gauge consumer acceptance and determine if there is a business case for the product. We expect the pilot to last three to six months, after which we will assess the results and decide whether to proceed with a broader rollout.

Q. Do you see increased competition in the market for debit-network services?

A. This industry has always been competitive, but I believe it would be accurate to say the level of competition has increased dramatically in recent years. The continuing consolidation among both customers and suppliers in the financial-services industry, coupled with the conversion of all the major networks to for-profit, publicly traded status, has contributed to this result. In addition, debit is a more mature product, which puts a premium on achieving additional growth through capturing market share.

Q. Pulse has announced a number of deals with financial institutions that include exclusive participation in your network. Are those types of deals harmful to the industry?

A. So long as network commitments result from the natural operation of a competitive market, I don't believe they should be viewed as harmful. Exclusive agreements are a strategic choice for both the issuer and the network, and may not be the right answer for everyone. Advan-tages for the financial institution may include simplification of their operational or network-connection environment, as well as reduced costs.

Q. What does the future hold for debit card transactions?

A. It is always difficult, and usually dangerous, to try to predict the "next big thing" in any business, but Internet PIN debit is a contender. We believe this payment method has the potential to deliver significant incremental volume by attracting consumers with PIN-only cards, as well as those who are reluctant to use their signature cards in the online environment. Over the longer term, applications that deliver mobile banking, and eventually mobile payments, also have huge potential. In the end, consumers will decide which of these opportunities will win in the marketplace.
Regarding data breaches, the industry absolutely needs to continue to focus on this issue. PCI compliance is important, but it's only a step in the process. Data security, like risk management, is a journey, not a destination. The key is ongoing vigilance because the bad guys are always working on new ways to crack whatever defenses we put in place. Our success as an industry in combating the problem will depend on our willingness to share information openly and collaborate fully on implementing solutions. ATM

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