What is a Personal Identification Number (PIN)
A personal identification number (PIN) is a numerical code used in many electronic financial transactions. Personal identification numbers are usually issued in association with payment cards and may be required to complete a transaction.
BREAKING DOWN Personal Identification Number (PIN)
Personal identification numbers provide additional security on an account. They are most commonly used with debit cards linked to a person’s bank account.
Personal identification numbers usually range from four to six digits and are generated by the issuing bank through a coding system which makes each PIN unique. Typically a PIN is issued to a cardholder by mail separately from the associated card. Account holders must also ensure that they maintain their username and password which provide online access to account information.
Personal identification numbers are regularly required when making an electronic transaction with a merchant or when using an ATM. Account holders should be cautious about sharing or disclosing their personal identification number.
Similar to receiving online information about a bank account. An account holder may also use an ATM to check on details of their account. With their card and PIN an account holder can access the account balances on all of the accounts associated with a specific card. An account holder can also withdraw money from an ATM if funds are available in their account.
Electronic Transaction Processing
Electronic transactions with merchants are slightly more complex than a standard ATM transaction. Merchant transactions will involve the merchant, merchant bank, processing network and issuing bank. Therefore, the use of a PIN number can help make transactions more secure by adding an additional layer of identification from the buyer.
Personal identification numbers are issued to a cardholder with their card. Commonly they are required as the final step in a payment giving a merchant the approval to process a card for payment. A PIN is usually only required by the merchant at the point of sale. Once approval is given to process a card, communication is sent to the merchant acquiring bank which facilitates the settlement of the payment.
The first few digits of a payment card are called the issuer identification number. These digits are unique to the card’s payment processor and provide information to the merchant bank on the processing network that should be contacted. A merchant and merchant bank agree to the processing networks that the merchant will be allowed to use in a merchant account agreement.
Once payment communication is designated to the specified processing network, the processing network can then contact the cardholder’s issuing bank. The issuing bank does additional security checks on the transaction to ensure that it is not fraudulent. They also confirm that the funds are available in a cardholder’s account for payment.
The issuing bank takes additional security precautions when receiving a transaction communication from a merchant in order to ensure the safety of the transaction. Once confirmed by the issuing bank, communication is sent through the processor to the merchant bank who notifies the merchant and begins settlement on the transaction.