Consumers Favor PINs Over Banks' Debit Payments - InformationWeek
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2/7/2008
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Consumers Favor PINs Over Banks' Debit Payments

Contactless and signature-based authorizations are not preferred because consumers believe the methods favored by banks are less secure, a Gartner survey found.

Drawn to the higher fees charged to merchants, banks and credit-card issuers are marketing the use of contactless and signature-based debit card payments. But a survey released Thursday by Gartner shows consumers aren't buying into the less-secure alternatives to using a personal ID number.

According to a survey of 4,500 online U.S. adults, the marketing push has failed to steer most consumers away from the use of PINs, Gartner said. Consumers refuse to change because they believe the methods favored by banks are less secure.

Consumers prefer entering a PIN when using a debit card over all types of signature-based card payments, whether credit or debit, Gartner found. Banks promote signature-based debit payments because they earn more fee revenue from card-accepting merchants.

Banks charge more on the premise that signature-based payments are riskier and more prone to theft.

"Fraud rates on signature-based debit card payments are at least 10 times higher, and banks usually eat these costs if they are incurred in a card-present (or store) environment," Gartner analyst Avivah Litan said in a statement. "Higher interchange fees paid by merchants to banks and card issuers for signature-based transactions must offset these costs or else banks wouldn't promote the signature variety."

People's least-favorite payment type is contactless, or wireless, payments, Gartner said. There is similarly small interest in using mobile phones to make payments.

Gartner advises brick-and-mortar businesses that accept electronic payments to promote use of PIN-based debit card payments by offering store-based incentive programs.

"Businesses pay less to banks for PIN-based payments and since consumers prefer them anyway, this is a win-win strategy for all parties except credit card issuers and banks," Litan said.

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