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Growth of PINless Debit Card Transactions May Impact Reward Checking


Early this year one of my contacts at a credit union told me about a disturbing new trend that they’re seeing with their members’ debit card transactions. More signature-based debit card purchases (done without PINs) are coming through as PIN-based transactions. This has some important ramifications for everyone with a checking account, and especially a high-yield reward checking account. The reason is that banks and credit unions make less money from PIN-based debit card purchases compared to signature-based purchases. Thus, if PIN-based replaces signature-based for debit card purchases, the financial institutions will earn less money, and that will make it more difficult for financial institutions to keep checking accounts free, to cover costs of ATM fees and to pay high yields on reward checking accounts.

Two years ago I described PINless debit card purchases. This is one of three basic types of debit card purchases:

  1. PIN = you enter your secret code
  2. Signature (or "credit" or non-PIN) = No code necessary, may need to sign for purchase
  3. PINless = no code necessary, but processed as a PIN purchase

From the customer point-of-view, PINless debit card purchases appear to be like a signature-based purchases. No PIN code is provided. However, the purchase is routed to the issuing bank through a debit network instead of a Visa or MasterCard network. That results in lower interchange fees that retailers pay to banks and credit unions.

My credit union contact said they have been seeing these PINless debit card purchases at Krogers owned grocery stores, gas stations and convenience stores. As this CUES article mentions, Walmart has also begun processing signature debit purchases as PINless. It appears the PIN networks have limited PINless transactions to purchases totaling $50 or less.

Why are we seeing this now? It’s connected to the Durbin amendment of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act which gives retailers options on debit card network routing. That went into effect a few years ago, but retailers had not been taking advantage of it. That recently changed, and as mentioned by the CUES article, "Big retailers may have been waiting for the outcome of a court challenge." That court challenge ended in January when the Supreme Court declined to review an appellate court decision.

This long zero interest rate environment has been very difficult on reward checking accounts. Rates and balance caps have gone down over the last several years. I’m afraid this is yet another headwind for reward checking. When I asked my credit union contact if they are planning to make any changes to their reward checking account due to this loss of interchange revenue, he said that if most retailers adopt this, he was sure it would lead to a drop in the interest rate.

In addition to the long-term impacts from the increased prevalence of PINless transactions, you should be aware of possible immediate impacts. If your reward checking account requires signature-based debit card purchases, you may be surprised when you find you didn’t meet your monthly debit card usage requirement. According to my credit union contact, they cannot tell the difference on their end. They only see that the PINless debit card purchase was a PIN-based transaction.

Another possible ramification is that your bank or credit union may hit you with an ATM-like fee when you make a debit card purchase that goes through as a PINless transaction. One guy was so mad with this fee that he started this Facebook page.

If PINless transactions do impact reward checking accounts, we’ll need to consider if reward checking accounts are worthwhile as an alternative to internet savings and checking accounts. As reward checking rates and balance caps diminish, internet savings accounts will look like a better choice.

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  |     |   Comment #1
Any update if Kroger still treats signature-based debit card purchases (done without PINs) as PIN-based transactions? What other merchants do is besides Walmart? Isn't it more wise to just use your credit card that earns anywhere from 1-2 or upto 5% cashback, and just use RCA debit cards for 10 or 12 times with small priced items?
  |     |   Comment #2
I don't believe Wal-Mart performs PINLess transactions.  Amazon, Paypal, McDonalds, many utilities, gas stations are some that I'm aware perform PINLess.  A bank should discuss with their PIN network to identify which of these are required and which are optional, then opt-out of those that are optional since the income from PINLess transactions can be so low that they don't offset the fraud losses.  It is a more secure for cusotmers to process purchases as a "Credit" since it does not put the PIN at risk, which can be used for ATM withdrawals and PIN purchases, both of which are harder to detect for fraud, but PINLess can complicate things because they look like Pinned transactions.
Randy E.
  |     |   Comment #17
Perhaps you should change your faith in Walmart? I made purchases today and yesterday at a local Walmart store in Albuquerque NM. Both purchases were made with a Debit card with no PIN entry or signature required! One for $11.49 and the second for $4865/ I was surprised and immediately concerned for possible fraud if someone else gets their hands on my card. Perhaps time to switch to all credit with money back card?
  |     |   Comment #3
Signature based debit transactions have been required for a while by INOVA's reward checking account, but more recently, they went to minimum $51 dollar purchases to get credit for the reward.  Now we know why.   Consumer's Credit Union's reward checking account also requires signature purchases.  Those purchases less that $50 dollars will eventually be converted by retailers to PINless transactions. This will make qualifying for the higher interest very difficult under the current scheme.
  |     |   Comment #6
For INOVA, I went to the Comcast and electric company offices. I made 5 $51 credit charges and paid the balances with my 2% cash back credit card. I stopped using INOVA when they dropped their rate to 2%.  Currently, I make 68 small charges and 25 $5. I never had a problem with Walmart until 5/1/2015. 5 of 12 charges went through as debit. 7 of 7 $2.02 charges went through as credit on 5/4/2015.
  |     |   Comment #5
bluebird has done this for their add funds feature for debit cards previously despite not using a pin for the transaction some credit unions count it as a debit and charge additional fees It happened with Innova for me.
  |     |   Comment #7
Ridiculous, I should be the one to decide if my debit card will be transacted as a PIN or pinless credit transaction. This pinless transactions treated as pin purchase is unfair, and not justified. If a merchant does this and we wanted  it to be treated as non-pin credit transaction, and we were not given the RCA high interest rate, can we tell our bank to do a chargeback..reason being the transaction was not coded as non-pin credit?
  |     |   Comment #8
And, those of us that only use credit cards...can only smile!  :-)
  |     |   Comment #9
If I make a purchase using my RCA debit card and 4 days later I decide to return the purchase and receive the credit for the purchase, does the original purchase still count as a RCA signature-based debit card purchase to meet the monthly requirements??
  |     |   Comment #10
And, the fine print in the terms and conditions say...?
  |     |   Comment #11
Does the fine print in the terms and conditions ever say anything? To #10, can you post an exemplary T&C regarding signature based debit transactions to meet monthly requirements? It probably does not state what they do if they receive a credit from a return. To #9, imho, if you made a purchase, it may count.
  |     |   Comment #12
This  is #10...I don't have the issue, you do.  Do a little research.  If you think they "say nothing," better reread them.
  |     |   Comment #13
#10,12 is clearly not answering the question. Clearly the issue is a non-issue. If you had 10 purchases and 10 credits or returns, as long as you had 10 transactions post using your debit card for signatures during your cycle, you will have met the requirements. According to Ken's posts on RCAs, there is nothing that says returns or credits are not included.
  |     |   Comment #14
..nothing says that returns or credits from merchants count against the number of purchases
  |     |   Comment #15
Looks like this is now happening in Iowa at Walmart stores. 
  |     |   Comment #16
I posted the reply below on an older thread here, but found that this one was newer, so I'm posting it here in hopes that it will help folks like me who get cash back with their bank card.  This is for those of us encountering the pinless debit issue at Wal-Mart, but it may also work at other retailers mentioned above.  If you find that it works at Krogers and other places who have instituted the 'pin-less debit below $50 system', let us all know.

The short answer:  Pre-swipe your card and you can force it through as credit. :-D

The long answer:  I get cash back for using my card for signature purchases, and these changes were taking that from me by forcing things through as Pinless Debits.  I used to be able to just say no to cash back and then change the payment type to credit, but that hasn't been working since the changes that Wal-Mart made.  

I discovered that if I swipe my card ***before*** all of my items have been scanned, then the system will ask me if I want cash back as usual, and after hitting "No" and selecting "Change payment" and then "Credit" and it will actually go through as Credit.  If you don't pre-swipe, then you may get those same options on the screen, but the system forces it through as Pinless Debit.  Pre-swiping is the key!

Of course any transaction over $50 can go through as Credit just fine, but I make lots of smaller purchases using my PayPal debit card, and I want my cash back for every one of them.  Try it at your local Wal-Mart and see how it works for you.  Hope this is helpful to someone. :-)


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