PIN Debit Punishment Pushed Back

Visa and MasterCard set a mandate effective July 1, 2010 to ensure that all installed PIN pads are using the most up to date triple data encryption standard (3DES) for processing PIN debit transactions.  In an effort to enforce this mandate, fines were slated to be imposed on those deemed out of compliance.  While technically, the July 2010 deadline is still in place, the threat of punishment has been pushed back.  The new policy isn’t threatening fines until Aug. 1, 2012, however Vantage will continue working with our clients to ensure compliance by July 2010.

The most interesting part of the article as reported on StorefrontBacktalk was that several of the nation's largest chains were threatening to abruptly cut off PIN debit at the deadline, possibly switching to signature debit to temporarily sidestep the issue.  One organization that had been pushing the change, the National Association of Convenience Stores (NACS), said their analysis of card costs has shown that signature debit (check card) is now the same cost as PIN debit but without the cost of having to upgrade PIN pads. 

As we discuss back in a June 2008 blog post, PIN Debit Requires Analysis, its not just automatic that a PIN transaction is less expensive that a check card transaction.  It really depends on the sale transaction size.  The larger the transaction the greater the possible savings from PIN but there is a breakeven and PIN can cost more on low dollar sales, especially when considering PIN pad hardware, encryption, maintenance, staff training and financial statement reconciliation.   We also discussed the trend of rising cost of PIN acceptance.  Back then when Interlink, the largest PIN debit network, removed the max fee caps, we predicted that it would put further pressure on all networks to follow suit to remain competitive.

Gray Taylor, payments consultant to NACS, said “We are concerned that PIN debit interchange—which has risen an average of 15 percent on a compounded basis since 1996—will price itself out of our market, and shift significant transaction share to Visa and MasterCard while eliminating access to new payment card concepts that bring competition to the card payment market. Of course, if the Maestro PIN debit interchange hike—78 percent—is any indication, EFT networks will price themselves out of our market without the TDES mandate.”

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