Debit Card Hacks – Will they affect E-Commerce?

I was contacted by a member of the press the other day and asked for my take on how the recent debit card fiasco would affect on line merchants.

Short term…
The bad guys that have this debit card information are not going to attack on line merchants for goods that they’ll have to convert to cash. They’ve been heading straight to the ATMs for the good green stuff.

In general, the direct impact on merchants in the CNP world will be minimal; certainly no more than a like number of credit cards but probably much less. I don’t think the CP merchants will feel it much either. Consumers, on the other hand, are going to take a huge hit. As you know, credit card holder’s liability is limited to $50 under FTC regulations but there is no such limit for debit cards. The card holder is responsible for keeping the PIN private and shame on him if it gets out and he doesn’t report the card stolen.

Yes, the banks will probably do what they can to keep their card holding customers happy, especially if the cleaned out account can be traced to a compromised PIN by whoever it shakes out is responsible. Will that accountability always be traceable? I don’t know. But even if the banks ultimately cover those losses, the cardholder has to deal with his account being cleaned out, bouncing checks, and all that goes with it.

The long term effects…
My big concern for the merchant – on line and off – is the consumer confidence fallout of this whole thing. We already have evidence that confidence in on-line transactions has been falling a bit. This first debit/PIN compromise by itself is survivable, but if it turns out that this wasn’t a one-time thing and we’ve suddenly discovered that PIN transactions are not as safe as we thought, then on line merchants are in big trouble and brick and mortar could be in trouble too.

And I have to wonder how long the banks are going to be willing to appease their debit card holders. At what point will they start passing the losses to the cardholders like they pass them on to the on-line merchants now?

It could become a matter of survival.

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