PIN or No PIN

The lawsuit by retailers vs. the banks issuing debit cards is still in process with no end in sight. Consequently, the debate on whether consumers should be encouraged to use their PIN or just their signature when using their card at a retailer continues. According to CardTrak, merchants pay the card-issuing bank about 25 cents for transactions authorized with a PIN and about 1.9 percent on transactions authorized by a signature. Use of higher mathematics shows us that the retailer pays a higher fee to the card-issuing bank when customers authorize their purchase with a signature on any purchase above about $13.16. Consequently, retailers encourage customers to use their PIN for most purchases, and banks prefer that they sign for their debit purchases.

Retailers and banks have an obvious interest in persuading consumers to use a method of authorizing the debit transaction that is most profitable to them; i.e. the retailer or the bank. On the one hand, Concord EFS and Hypercom are marketing a terminal displaying a STAR network logo. The terminal accepts all types of payment and debit cards, and it prompts customers to punch in their personal identification number. On the other hand, banks are encouraging cardholders to use their signature when authorizing payment by their debit cards. Commerce Bank in Missouri has revived its program called "Skip the PIN—and win!" Each time consumers sign their authorization they are automatically entered into a weekly lottery paying $1,000 and a grand prize drawing for $25,000. Other banks offer incentives, such as extended warranty or price protection, for using signatures rather than PINs.