Managing the new economics
By implementing these changes, credit unions will be able to offset the negative member experience PIN-less debit will produce.
However, these changes require an investment by the debit-issuing credit unions that may be difficult to justify because PIN-less debit will also reduce their debit interchange revenue.
To create an ROI that supports these changes, credit unions may need to consider these changes to their reward, marketing, and incentive programs to pay out at a level that can be sustained by the lower interchange revenue:
• Debit card reward and marketing programs. As with the member experience challenges, credit unions that typically only recognize signature debit purchases will feel the economic impact of PIN-less debit programs.
Institutions that move to the “reward all debit model” will likely need to reduce the member benefits associated with these programs to accommodate the lower interchange revenues from PIN-less debit.
• Checking account incentives. The economic impact of PIN-less debit also will affect the viability of existing checking account incentive programs.
Credit unions may need to alter the structure of these programs to account for the lower revenue contribution of debit purchases. A couple options to consider include requiring more debit transactions or increasing the minimum balance requirements for program qualification.
The other area of financial impact that PIN-less debit will introduce is related to fraud. In some instances, credit union issuers are finding that PIN-less debit is leading to a migration from PIN debit—not signature debit.
This creates a new set of challenges for these credit unions because the sophisticated models used to mitigate fraud may not be set up to handle these transactions.
As a result, credit unions will need to invest time and effort developing new expert rules and retraining their neural network models to recognize and handle PIN-less debit at the POS.
Working as a team
While, in general, competition is good, the introduction of PIN-less debit—which forces incremental new costs and reduced revenues on debit card issuers—isn’t helping to move the debit payments industry forward.
In an era driven by innovative new consumer experiences and regulation that is hyper-sensitive to protecting consumer rights, deploying PIN-less debit in a zero sum model—without providing consumers an opt-out option—seems extremely short-sighted.
The traditional payment industry players may want to start thinking about taking the high road and working together to modify the PIN-less debit model in a way that creates a winning situation for everyone involved.