PINless Debit Card Networks

We all have heard the names of the companies like Visa and MasterCard. Visa and MasterCard are credit card associations which maintain large card networks of issuing and acquiring banks through which credit cards are processed. Credit card associations charge a certain interchange fee for every processed transaction.

Some banks have also created their own card networks which are called debit networks. The examples of such networks in the USA are PULSE, NYCE, Maestro, Interlink etc. Debit networks were used by merchants in order to reduce processing costs by reducing interchange cost while before Durbin Amendment adoption (2011) credit card associations charged 2.5–3% of transaction’s amount for debit card processing. The maximum amount which can be charged today by a credit card association is 0.95%. Consequently, the savings are not that significant as they have been before (10–20 basis points). That’s why currently this solution is mostly used by merchant with high processing volumes while even 10–20 points make difference to them.

Companies which have problems with chargebacks also prefer to process payments through PINless Debit Networks because if the transaction is processed through a debit network the money cannot be charged back. And it is important that the chargeback rate should be less than 1% within Visa and MasterCard if a merchant does not want to fall into the category of the high risk merchants.

More examples and some additional information on this issue is provided in the respective article at #Paylosophy.