What is Pin-Authenticated Visa Debit and How Does it Impact My Credit Union?

Education is key to a changing environment. CSCU brings you this educational piece by Visa to help you understand pin-authenticated visa debit (PAVD) and how it will potentially impact credit unions’ debit card portfolios. Be sure to check out the link to frequently asked questions at the end.

The Visa network has long supported a wide variety of Cardholder Verification Methods (CVMs), including signature, PIN and even ‘No Signature Required.’ PAVD is, and has been, a core component of Visa Debit functionality, although it was not widely used in the past, and in many cases it was sub-optimally implemented by stakeholders. According to Visa, prior to 2012 many issuers, acquirers, and processors were not properly processing PINs on Visa Debit transactions, which led to high decline rates. With new debit regulation approaching, Visa recognized that PIN transaction volume may grow due to greater merchant control of the routing choice and the preference of some issuers for PIN authentication. It was imperative for Visa to ensure that PAVD transactions perform with the level of service that cardholders, issuers, acquirers, and merchants expect from Visa.

To that end, Visa required that all issuers and their processors be capable of properly handling PAVD transactions with the April 2012 Visa Business Enhancements Release. Visa worked closely with issuers, processors, and partner organizations like CSCU to ensure optimal system performance and minimize any potential for negative consumer or merchant experiences at the point-of-sale. These efforts were very successful and Visa reports that service levels and authorization rates have been maintained at or above expected levels for PIN debit transactions.

PAVD transactions are separate and distinct from Interlink transactions. PAVD transactions are Visa Debit transactions and are part of existing Visa network functionality. While PAVD transactions can be acquired in the U.S. or internationally, Interlink continues to be a PIN-always single-message solution generally for U.S. domestic transactions. As a core part of Visa Debit functionality, PAVD transactions share the same pricing, interchange and chargeback rights as all other Visa Debit transactions. Visa Debit issuers receive interchange and pay fees on total Visa Debit volume regardless of cardholder verification method (i.e., PIN, signature, no signature required). In fact, Visa Debit fees can be lower than other networks given the increasing prevalence of small ticket transactions.

Ensuring stakeholder readiness for PAVD transactions was part of a larger revamp of Visa’s debit strategy designed to help Visa better compete in a newly regulated environment in which merchants have greater control over the routing of debit transactions. This strategy specifically included modifications to some Visa fees and interchange rates. Visa’s interchange modifications included increasing or decreasing rates in segments such as supermarkets, fuel, bill-pay, and retail—with the goal of delivering benefit to financial institutions of all sizes (on both the issuing and acquiring side), merchants, and cardholders. Collectively Visa’s economic modifications were intended to provide merchants and acquirers with a financial incentive to route transactions to Visa, more effectively compete with alternative networks, and provide better value and higher quality transactions (e.g., Zero Liability, fraud scoring, etc.).

Despite the fact that PAVD transaction mix has increased over the past year, this has had no impact on Visa Debit effective interchange for issuers. The same issuer fees are applied on PAVD transactions as on all Visa Debit transactions. Effective interchange does vary based on factors such as average ticket size, merchant category, and channel (card present vs. card not present). Each issuer’s effective interchange rate and corresponding fees will vary based on its transaction mix. Visa is continually evaluating interchange rates to maintain routing, increase merchant acceptance, and provide value to issuers. Visa’s analysis has consistently shown that Visa/PAVD interchange rates are generally competitive with interchange rates of competing networks.

As we all know, the debit industry is increasingly complicated and competitive. Historically, networks tended to be simply defined as “Signature” or “PIN.” In reality so called “Signature” networks have always supported a variety of verification methods. Similarly, “PIN” networks for years have supported “PINless” transactions in the bill pay category, and are beginning to expand this functionality further into Card Not Present and even Card Present merchant categories. Debit network competition for transactions has always existed and is now accelerated as a result of the regulatory changes that began taking effect in the U.S. back in April 2012.

Understanding your portfolio is even more important in a post-regulatory environment. CSCU stands ready to help you navigate these dynamics and help you grow your payments businesses while preparing for exciting opportunities that lay ahead such as EMV, V.me (digital wallets) and the adoption of mobile-based products/technologies.

For answers to frequently asked questions, read PAVD FAQ’s here. For further information, contact Portfolio Consulting Services at 888.930.2728 ext. 307 or www.cscu.net/pcs.


Strategic Link is the NWCUA’s wholly-owned service corporation, using the power of aggregation to provide the Association’s member credit unions with exclusive high-quality, competitively-priced products and discounted services. Contact Director of Strategic Partnerships Craig Reed today to find out how Strategic Link can help your credit union save money while meeting its goals in 2013 and beyond: 206.340.4789, creed@nwcua.org.

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