Two areas of opportunity for retailers are online debit acceptance and electronic signature capture. Both online debit and electronic signature capture offer a positive return on investment to retailers, as well as faster checkout lane throughput.
Online debit is the fastest growing form of consumer payment in the United States today. Online debit is the input of a PIN (personal identification number) when a shop pays with a Visa or MasterCard check card or an ATM card. The shopper does not sign a receipt or credit form for the purchase. Consumers of all ages and economic backgrounds appreciate online debit for the security and ease of use it offers. Merchants benefit from its payment guarantee, the elimination of credit card chargebacks, minimal transaction fees and reduced settlement float. Consumers benefit from quick checkout as well as Visa and MasterCard’s “zero liability” policies.
The vast majority of cards issued today are Visa and MasterCard branded check cards, which consumers use for both signature-based (offline debit) and PIN-based (online debit) purchases. Over the last decade, the number of check cards issued has grown from 17 million in 1993 to 183 million in 2003. Today, more than one half of people with checking accounts in the United States have a check card. Consumers that previously paid by check or cash are now using a check card as a more convenient and budget-conscious alternative. These consumers use their check card with PIN entry for ATM withdrawals and in supermarkets as well as the majority of major multi-lane retail stores.
Debit cards are also being issued to a significant percentage of the US population that previously did not have banking relationships. These debit cards include payroll cards and cards used to distribute public benefits programs such as welfare, food stamps and others.
A signature-based debit transaction requires no personal identification number (PIN) entry by the consumer with the transaction being transmitted through the VISA and MasterCard networks for authorization in a manner similar to that of a credit card. When check cards are used for signature-based purchases, they carry interchange fees, as set by the card associations that are higher than PIN-based debit. The higher fees of signature-based debit are imposed in part to offset the increased fraud and credit risks associated with credit card transactions.
A PIN-based debit transaction requires a PIN entry and the transaction is encrypted for security and passed through the retailer’s processor, onto the nationwide POS debit network and then to the issuing bank where the consumer’s account balance is validated and then debited. The regional and national POS debit networks set online debit interchange fees, which are significantly lower than credit card network interchange rates. With PIN-based debit, there is virtually no fraud or risk to the retailer and the customer still enjoys “zero liability” for fraudulent use of the card. Retailers also find that they receive their funds faster with online debit than they do with standard credit cards.
Online Debit Return for Retailers
The interchange component that is paid by a merchant is determined by what network is used for authorization and settlement and the category in which the transaction settles. When a debit card transaction is processed through either the VISA or MasterCard networks there is a lower interchange rate for debit (signature) that for credit card transactions. When the debit card transaction is PIN-based, rather than signed, it is settled in an “on-line” debit category which is even lower. If that same debit card transaction is PIN-based and is routed processed through one of the debit networks (STAR, NYCE, Pulse, Etc.) the interchange is even lower.
Many merchants are reducing the interchange rates that they pay by as much as one-half by prompting shoppers to enter their PIN for debit card transactions, and then making sure that those transactions are routed to the lowest cost settlement network. The savings a merchant realizes is effected greatly by the size of the transaction and the transaction volume created by the merchant. The ability to recognize debit cards, prompt for PIN and route to the lowest price processing target is determined by the merchant’s hardware and software sophistication.
Online Debit Summary
Online debit is an accepted form of payment that provides significant advantages to retailers- guaranteed transaction, faster available of funds and reduced opportunity for chargebacks. Visit www.ingenico-us.com for more information.
Electronic Signature Capture
In addition to online debit, electronic signature capture provides solid returns for retailers. Specifically electronic signature capture reduced handling time and expense, materials cost, Credit card storage facility cost, Handling of Charge Back Retrievals, Chargeback Savings – Lost Receipts and other chargeback related savings.
Retrieval Volumes are Increasing in Response
With credit cards purchases continuing to climb at the retail point of sale counter, so do consumer challenges of credit card purchases.
If you were to use the industry standard that .1% of all credit card purchases are challenged, the result is that U.S. retailers were faced with potential charge backs of $38 billion in 1998 and a forecasted $56 billion in potential charge back losses in the year 2010.
It is also estimated that of the 0.1% of credit card purchases that are challenged, between 0.2% and 0.4% of those challenges are not responded to by the retailer. 1998 retail losses were estimated to be $77 million and are anticipated to climb to $135 million in 2010. The majority of these losses can be attributed to the inability of the retailers to find the receipt that is being challenged or the choice that retailers make to not retrieve a receipt due to high retrieval and handling costs.
The Benefits of Credit Card Storage and Retrieval
There are six areas of benefit that a retailer can gain from implementing an electronic credit card storage and retrieval system. The areas in which an electronic credit card storage and retrieval system can benefit are reduced receipt handling costs, lower materials cost, reduced charge back handling, charge savings by eliminating lost receipts, charge back savings by reducing the number of “no signature found, and other assorted reasons for charge backs.
Many merchants are able to realize more than a thousand-dollars per year per store in savings generated by a state-of-the-art electronic signature capture and merchant copy retrieval system. This, of course, varies on the average size and frequency of both “requests for merchant copy” and actual chargeback losses. It is also strongly influenced by the cost of storage supplies, transportation costs when merchant copy storage is centralized, average lanes per store, occupancy costs of storage space, human resources expended in handling paper receipts, human resources used in merchant copy look-ups and responses, and the quality of receipts found during research.
Credit card receipt handling labor costs
Each time a receipt is handled it adds cost to the storage and retrieval process. Our experience has shown that a receipt is touched at least 9 times by an employee. We estimate that 1 minute is required during the lifetime of each ticket considering the many times the ticket is counted, sorted, transferred, referenced and finally destroyed. Electronic capture of the signature and the ability to reproduce receipts electronically virtually eliminates all of the handling costs. In our analysis, we conservatively assume a 75% cost reduction in this area.
There is a cost for materials such as boxes, paper and envelopes that is eliminated with the installation of a credit card receipt and signature management solution.
Credit card storage facility cost
Most retailers do not have the storage space on their corporate campus necessary to store and manage the volume of receipts tendered at the point of purchase. Implementing a credit card receipt and signature management solution will enable a retailer to reduce and eventually eliminate this expenditure.
Handling of Charge Back Retrievals
It is our experience that a retailer accepting credit card will conservatively experience .15% in charge back requests per month. Assuming the level of requests will continue an automated system will reduce charge back retrieval cost by approximately 80%.
Chargeback Savings – Lost Receipts
A lost receipt is defined as one that can not be found during the retrieval process in response to a charge back request. A credit card receipt and signature management solution eliminates the store and physical search for a receipt, thus reducing the chance that a retailer will not be able to response to a chargeback request.
Charge Back Savings – No Signature
While the signature capture device in the proposed system will prompt for signature, there will always be customers or cashiers that find methods of non-compliance. Our customers typically find a 70% charge back reduction for “no signatures” and savings accordingly.
Charge Back Savings – Other Reasons
Retailer that have implemented a credit card receipt and signature management solution have indicated that they have been able to reduce charge backs for “other reasons” by 75%.
Electronic Signature Legality
When investigating signature capture, retailers ask about the legality of a signature captured electronically, versus ones captured with pen on paper. Federal legislation that validates the equal level of contract enforceability of both “electronically signed” and “blue ink” documents includes:
Electronic Signature Global and National Commerce Act
Uniform Electronic Transaction Act
Uniform Computer Information Transaction Act
Per the Information Security Committee, Section of Science & Technology, American Bar Association (1998, Information Security Committee, Section of Science & Technology, American Bar Association) , “where the rule of law requires a signature, or provides for certain consequences in the absence of a signature, that rule is satisfied by a digital signature which is affixed by the signer with the intention of signing the message, and verified by reference to the public key listed in a valid certificate”.
This guideline provides that a digital signature satisfies formal requirements of a signature. It states that a digital signature, like a paper signature, is principally an authentication mechanism.
Electronic Signature Capture Summary
In summary, electronic signature capture and automated receipt retrieval provides a quantifiable and qualitative return to retailers. In the store, electronic signature capture speeds customer service by eliminating paper receipt handling and the customer signing process. Physical handling of credit card receipts in the back office is also eliminated and the opportunity for employee fraud is decreased.
At corporate, credit card receipts are electronic, eliminating the physical handling process. The cost of paper receipt transport and storage expense is eliminated.
Most importantly, the lookup errors, labor cost, penalties and losses involved in responding to charge back requests are minimized, if not completely eliminated. Electronic signature and receipt management eliminates the labor cost and makes it worthwhile to respond to all requests regardless of ticket size. Also the legal and security issues involved in the storage and shredding of outdated receipts is removed.
For more information contact Ingenico at www.ingenico-us.com.
Ingenico has more experience in major retail point-of purchase than any other payment terminal provider. We have over 800,000 terminals installed in the U.S. providing online debit PIN entry, electronic signature capture and customer-activated payment. Retailers such as Wal-Mart, Kmart, Toys R Us, PetsMart, Walgreens and many others depend upon Ingenico to provide robust and easy-to-use payment terminals, software and services. Our installations for these retailers include terminals, installation assistance, integration, applications, customization and support services.