My colleagues and I were interested to read the recent PayThink column "A 'dual message' that puts issuers’ flexibility on the spot."
Frankly, we came away baffled by the premise that financial institutions could have too many domestic debit options.
We have yet to encounter a financial institution that believes they have too much choice. Instead, issuers tell us they want more choice.
The rise of EMV, mobile wallets, online checkout and other payments innovations in the U.S. the past few years has ushered in a wave of change, innovation, opportunity and disruption. It hasn’t happened in a vacuum; the market is adjusting to intense consumer demand for fast, convenient, safe and frictionless payments.
The growth and popularity of debit payments has been driving monumental change in the U.S. and Domestic Debit Networks have been at the forefront of this wave of innovation, adapting their products and services to meet these changing market needs.
Long-known as the "PIN debit networks," these domestic U.S. payment networks now enable much more than just PIN-based debit acceptance. These offerings include non-PIN debit acceptance for POS purchases and card-not-present payments supporting bill payment, e-commerce and card-based P2P transfers, each offering convenience and efficiency as consumer preference for online and mobile payments grows. Domestic Debit Networks enable these transactions using a combination of single-message and dual-message formatted messaging.
Dual-message, synonymous with signature authenticated transactions, has been predominantly used by global networks in duopoly fashion, but not any longer.
Ultimately, we are responding to the strong preference of consumers for transactions that don’t need a PIN or signature. This has been made possible by advances in security like chip cards and terminals and tokenized transactions.
For financial institutions, this evolution makes it possible to harness the uptick in PINless transaction economics as consumers reach for their debit cards at the point of sale and online. While it is true that gross interchange value may not change much, if at all, that is a poor measure of the true net value of payments. Additional costs such as switch fees, assessments, settlement charges, membership fees and many others must factor into the equation.
We also are mystified by the column's assertion that PINless transactions from U.S. Domestic Debit Networks could disrupt the customer experience or add complexity. This is simply not so. Issuers have seen transactions without cardholder verification for years and there is absolutely no difference in how PINless transactions from U.S. domestic payment networks should be treated.
The expanding adoption of dual-message functionality among Domestic Debit Networks offers issuers and merchants a competitive solution set that drives value and transaction security and ensures routing choice under Regulation II.
The bottom line is that a robust competitive environment of many suppliers ensures that those stakeholders get the best products at the best value. This is true of any industry, but even more so of the U.S. payments industry, which has a history of just two suppliers wielding a disproportionate amount of influence and control.
Issuers know that competition encourages innovation. They also know that more options are better than fewer ones. Issuers know that their Domestic Debit Network partner is looking out for their interests. And they know that Domestic Debit Networks are needed now more than ever.