Peter Guidi's Blog

Pen or Pin: An expensive decision for the retailer. Are best things in life free, or do you get what you pay for?

In alternative payment, Bank Tax, credit card, debit card, interchange, loyalty, payment, Payment card on February 3, 2010 at 9:49 pm

Debit cards are making news as the consumers preferred method of payment. Financial industry analysts predicted that debit cards would overtake credit cards and would start a change in the loyalty offering and other types of card incentives from credit to debit cards. It was never predicted that it would happen so quickly with such a tidal-wave type of shift. One major transaction processor, revealed that membership in credit card reward programs has declined from 71% of the consumers surveyed in 2008 to 67% this year. While at the same time, the participation in the debit reward programs has increased markedly from 34% of consumers surveyed in 2008 to 45% this year. This trend is expected to continue as consumers struggling under the load of credit card debt move to debit.

PCI PED deadlines appear like a fog bank on the horizon, big, dark, impenetrable and getting closer. Retailers are faced with the decision to either upgrade from older, no-secure PIN pads to PCI PED approved pads at significant cost, or to accept all cards as “signature” at the pump paying the higher “signature transaction fee”.

Meanwhile, banks are sending a conflicting message as retailers are now faced with PIN debit transaction fees that are nearly equal to signature debit transaction fees.  Adding injury to insult, Financial Institutions are offering consumers aggressive “debit reward” programs based on consumers’ choosing ‘Signature” rather than PIN.  Rewarding the consumer for using signature debit is essentially bribing the consumer to use a more expensive form of payment. One major bank recently released its “Swipe & Sign” program offering consumers a $10.00 gift certificate from Amazon.com for one “signature debit transaction” at a grocery store. The result is retailers are paying for more expensive Signature based debit transactions. This is a “dammed if you do, dammed if you don’t” situation. 

Retailers are wondering if the upgrading to PCI PED pin pads is worth the expense. They face a situation where the lower cost PIN debit rate is going away at the very same time banks are rewarding consumers to use signature debit. It appears that the banks are saying “no” to PCI PED upgrades.

(http://www.linkedin.com/in/peterguidi)

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