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RATES
Study: PIN Debit Cheaper, Less Fraud-Prone
Than Signature
(November 16, 2005) PIN debit transactions are cheaper than debit card
transactions secured by signature, incur lower fraud losses, and generate
slightly higher average tickets, according to a survey of issuing banks.
Taking into account processing costs as well as the cost of back-office
fraud-management, chargebacks, settlement, customer service, and accounting
functions, the banks said a signature-debit transaction costs them 22 cents on
average, compared to 11.6 cents for a PIN-based payment. Such costs, they
said, make up 90% of the total cost they incur with both PIN and signature
products.
Marketing costs, which according to the survey apply exclusively to
signature-debit portfolios, widen the cost gap further, says First Data Corp.,
which sponsored the survey. First Data owns the Star electronic funds transfer
network, which links 1.7 million point-of-sale and ATM locations for PIN debit
acceptance. The Denver-based processor also handles signature-debit
transactions.
The study found that average net fraud losses on signature debit cards
are four times higher than on PIN-based cards. This multiple is considerably
smaller than the one found in a survey conducted by Dove Consulting and
released last month by Pulse EFT Association, a rival network to Star, which
found signature fraud was 15 times greater. (Digital Transactions News, Oct.
12). In a somewhat surprising result, the survey reveals the average ticket on
PIN-debit cards is almost $2 higher than that for signature debit, $40.32 vs.
$38.34. PIN-debit transactions usually settle on the same day, whereas
signature-debit card transactions have settlement times closer to those of
checks. Also, rewards and other incentive programs some banks attach to
signature debit cards could be expected to encourage higher spending than on
PIN debit cards. But First Data officials say the cash-back feature on PIN
debit cards results in a higher ticket for the product.
As a result of the study, banks may find that their signature-debit
portfolios, which earn far higher interchange income than PIN-debit, may not
be quite as profitable as they thought, First Data says. "From a revenue vs.
cost perspective, the net benefit of signature and PIN may be considerably
closer than the issuing financial institution may have originally
anticipated," said Debra Janssen, president of First Data Debit Services, in a
statement.
The "2005 POS Debit Issuer Cost Study," which was conducted by First
Annapolis Consulting, surveyed 11 banks falling into various portfolio-size
categories, from fewer than 100,000 active cards and fewer than 20 million
annual transactions up to more than 500,000 active cards and 100 million
transactions yearly.
DIGITAL TRANSACTIONS NEWS
November 18, 2005
Vol. 3, No. 4
Copyright ã 2005 Boland Hill Media, LLC. All rights reserved.
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