ill 2004 be the year of PIN debit? Probably not; but PIN-secured payments are on the minds of a lot of folks these days and probably will be for some time.

Consider, for example, that a key issue raised by the U.S. Department of Justice in its attempt to block First Data Corp.'s acquisition of Concord EFS in 2003 was that the combined company would control more than 50% of the PIN debit market.

The final resolution of that conflict requires First Data to divest its ownership stake in NYCE, a large ATM/POS debit network it bought into a few years ago.

Remember, also, that the Wal-Mart settlement untied credit and check card (signature-based debit card) acceptance at the merchant check out. Now that the artificial price supports for signature debit have been removed, check card usage could be slowed. And that might provide a lift to PIN debit.

Alan Lacy, Chairman and CEO of retailing giant Sears, Roebuck and Co., hopes for such an outcome. Addressing a group of high-level bankers brought together by the Federal Reserve in November, Lacy urged banks to adopt PIN security for all forms of payment-credit, debit and stored value.

"Then, retailers would have the incentive to change equipment," Lacy told the bankers and the Fed's payments staff. (These staffers guide all of the Fed's payments initiatives.)

Today, only about 30% of retailers are PIN enabled at the point of sale. So, there are plenty of opportunities to sell PIN pads and PIN-enabled POS terminals into this market. But will all those merchants want to upgrade to PIN security?

I don't have a crystal ball, so I don't know for sure. But one thing is certain: a lot of things have been changing in the payments space the last few years, and folks are getting a lot more comfortable with debit cards and other electronic payment instruments that use PIN security.

Consumers made more than 3 billion PIN debit transactions in 2000; those transactions represented just over $139 billion in payments, according to the Federal Reserve's data. (Those are the most recent data available; updated research should be released later in 2004.)

In 2002, for the first time, the use of electronic payments by consumers for in-store purchases exceeded the use of cash and checks. And Dove Consulting says debit applications are driving the growth in electronic payments.

Dove's latest research on retail payments trends, conducted on behalf of the American Bankers Association and several payment companies, reveals that nearly one in three (31%) in-store payments last year were with debit cards. In 1999, debit represented just 21% of in-store transactions.

While this may sound impressive, the numbers can be deceiving because they make no distinction between off-line (signature) and online (PIN) debit card usage. We know, anecdotally, that signature debit has grown in popularity over the past four or five years, but attempts at tallying the numbers have been futile.

The latest GSQ (Vol. 6 No. 4) serves as testimony to this. In an attempt to provide a more inclusive picture of the payments acquiring market, we asked leading acquirers to breakout check card transactions from their credit card transaction totals.

Among those companies that responded to our requests for information, only a few were able to provide the breakouts, and none of the top five could (or would).

One of the banks that did provide breakouts was Bank of America (BofA), which is reported to have the largest base of checking accounts in the country and is a big issuer of debit cards. Since both online and off-line debit cards provide consumers with access to their checking accounts, using BofA as a proxy should provide a rough sketch of debit card usage.

BofA expected to acquire just over 257 million signature debit and nearly 342 million PIN debit card payments in 2003. That's roughly a 40/60 split. Applying that math to the Dove data suggests PIN debit is more popular with consumers than the Visa or MasterCard check cards. (Comparing check card to credit card payment tallies, about one third of all "credit card" transactions acquired by BofA were check card debits.)

Alan Lacy, in describing the experience at Sears, confirmed that consumers like debit cards. But he also said consumers have concerns that could thwart further rapid growth. Chief among those concerns were lack of standards, security and pricing.

I think it's fair to say that pricing is an issue with merchants as well as consumers. Merchants, we all know, disliked the fee structure for signature debit and succeeded in pressing Visa and MasterCard last year to slash the interchange fees on check card payments.

Meanwhile, some banks (many of the largest, in fact) are hitting consumers with fees for POS cash-back transactions. As a consumer, I find this new fee really annoying, and so do many of my friends and colleagues.

After years of touting the convenience of POS cash-back features, now my bank wants to charge for it! (And to think, I've been getting cash back at the checkout all these years to avoid those darn ATM surcharges.)

Security? Well that's an issue best left for the computer geeks. I don't pretend to understand all the technology considerations. Physical security, of course, is another issue; and there are obvious concerns on that front as it relates to debit card use.

Standards? These could be a problem, especially as the topic relates to procedures for using PIN debit cards at the retail checkout.

I'm a pretty savvy consumer. And I think it's fair to say that I know more about how POS systems work than the average person. Yet, each of the three grocery stores at which I regularly shop has different procedures for accepting PIN debit cards for payment. I'm always asking the clerks to help me through the process, which certainly makes me feel like a jerk. I can only imagine how it must affect folks like Aunt Mary Lou.

The lack of standardized procedures for PIN debit card usage is not only a problem at stores in my area, it is a problem in stores all over the country.

Conversations with consumers and store clerks nationwide suggest that a lack of procedural standardization puts a damper on usage of PIN debit cards at the retail check out.

Lacy's recommendation-that PIN security be adopted for all payment types-addresses this issue. It also could help merchants (and banks) avoid billions of dollars a year in payment card fraud. (That, alone, should be a big selling point.)

The Verified by Visa program for Internet purchases looks like a good first step in the direction Lacy suggests. But that program is a bit clumsy and was developed to address the unique situation of online stores.

A broad-brush approach to PIN security for payment cards will take time. And conversion to a PIN-based POS environment will likely occur one merchant at a time.

Time is a force to reckon with in the payments space. Seventeen years ago, when I was working on a few EFT newsletters, we could run a list of POS debit locations on a single page. Today, about the only EFT list that size is the list of networks.

When I first started out as a reporter covering the Fed 20 years ago, check truncation was no more than a glimmer of hope in the eyes of a very few bankers and consultants. Later this year, with implementation of the Check 21 Act, check truncation will finally begin to take off.

So, PIN-secured payments is an idea that probably needs a few more years of incubation.

Patti Murphy is Contributing Editor of The Green Sheet and President of Takoma Group. She can be reached at patti@greensheet.com