Here's an interesting excerpt from American Banker in which they talk about PIN Debit vs. Signature Debit. The setting is restaurants, however, the point is still valiantly made why PIN Debit is the better of the two types and has a strong future as an Internet Payment Mechanism.Mr. Rasori said VeriFone's research indicates that between 50% and 70% of all meals at sit-down restaurants are paid through signature debit transactions, which are significantly more expensive to the merchant than PIN debit payments.
According to Mr. Luria of Wedbush Morgan, the difference in transaction costs, depending on the restaurant's arrangement with its acquirer, can be "an order of magnitude." The typical transaction fee is 2.5% for a signature debit transaction and 1% for a PIN debit transaction. "These transactions are priced differently because of the risk," he said.
"A 'PIN card-present transaction' is the lowest-risk transaction you can do — that is why it is priced at the lowest level. For a signature debit or credit transaction, there is higher risk and higher pricing."
However, Mr. Rhodes' position assumes that the difference in transaction fees is matched by the difference in risk. Some industry analysts doubt that this is really the case.
Avivah Litan, a vice president with Gartner Inc., said that despite consumers' stated preference for PIN transactions, banks have been creating incentives for signature debit ones. "There are two reasons why banks like signature better," she said. "One is that they generate revenue through higher fees. Second, if a signature is forged, they can charge the amount of the transaction back to the merchant, but if a PIN is stolen, the bank is on the hook."
Mr. Bergeron says that in the long run he is not worried about efforts by banks to push signature debit over PIN debit. "Banks realize that increasing the size of the overall market is more lucrative than trying to squeeze extra fees out of a fixed market that faces increasing numbers of competitors," Mr. Bergeron said.
"One thing you can be sure of: Banks will always find a way to make money from handling transactions. The biggest issue for them is market share, so the more creative they can be in expanding the use of their cards, or the number of transactions they process, the better off they will be."
