Consumers are also prevented from earning debit card reward points.

Instead, after swiping his or her debit card, the member immediately receives a receipt without being given the option to choose debit or credit, and the transaction is automatically routed as a lower-interchange PIN transaction. PINless PIN debit generally applies to transactions totaling $50 or less.

Under the Durbin Amendment to the Dodd-Frank Act, debit issuers with assets of less than $10 billion, which includes most credit unions, did not have signature-validated debit transactions capped. Credit unions and other issuer allies won the exemption during the legislative process, arguing that credit unions needed the noninterest income the debit card interchange provided.

But with the passage of Durbin and its accompanying regulations, debit transactions became little more than a commodity, and it has become steadily more difficult to protect the higher, small issuer interchange rate Congress mandated in law, experts said.

"With the processors, it's all about transactions and getting more transactions," Norm Patrick, director and strategic consultant for Advisors Plus, the card consultant wing of PSCU, explained. "The PIN networks brought this in a few years ago and have been ramping it up in an attempt to pull more transactions."

Patrick and other executives agreed that PINless PIN debit is not new; it began when organizations such as utility and cable companies wanted a way to let consumers who use debit cards pay their bills online. Processors and issuers considered these transactions low risk because the amounts were generally lower and carried their own identifiers (they thought, how many thieves would use stolen or counterfeited debit cards to pay their gas or water bills?).

However, PINless PIN debit has been relatively new at the point of sale, where retailers found both the lower interchange and lower transaction speed appealing. Currently, it tends to be larger retailers who have put PINless PIN debit into place, but processing executives agreed it's only a matter of time before more and more retailers adopt the approach.

"As long as the amounts are kept fairly small and as other fraud prevention methods keep getting better, I predict it will likely get steadily more popular," Barney Moore, manager of portfolio consulting services for Card Services for Credit Unions (CSCU), the association of credit unions that processes payments with the card processor FIS, said.

Moore suggested it might be impossible for credit unions to prevent this from taking place, and that they might instead focus on getting higher transaction volumes onto cards, no matter how much interchange individual transactions generate. This is hard for credit unions to accept, he said, because the amount of potential lost income can be significant.

Moore said CSCU credit unions averaged 18 signature-validated transactions per month and eight PIN-validated transactions. Patrick reported similar numbers for PSCU, 14 signature transactions and eight PIN-based transactions monthly.

Depending on the processor and credit union, each signature-validated transaction brings in between $0.44 and $0.50, so each active debit card account, on average, makes a credit union roughly $8 or $9 per month, versus roughly $4 from PIN based transactions.

However, Jim Hanisch, executive vice president with CO-OP Financial Services, pointed out that credit unions have seen this assault on signature debit interchange for some time, and that overall interchange income has not dropped.

Hanisch attributed this sustainability to the 8% yearly growth in the overall debit market as more transactions steadily move away from cash, checks and ACH and onto cards.

"Ever since the Durbin Amendment, there has been steadily more pressure on credit union exempt interchange," Hanisch explained. "But the overall debit interchange flow has not declined. That's because of the 8% yearly growth in debit, and we expect that there is still more growth available."

Hanisch said CO-OP is advising its member credit unions to focus on building debit card volume generally.

"We're telling them that having some interchange is better than having no interchange," he said, adding continued growth in debit card use and penetration means debit cards remain profitable.

The rise of PINless PIN debit suggests credit unions should continue to focus on building up their overall debit card portfolios, and rewards plans should zero in on debit card use over driving particular transactions, the executives advised.

One firm that may find the trend inconvenient is Kasasa, the national checking and financial service program from BancVue that aims to help credit unions and community banks compete against larger national banks.

Debit cards have provided the income portion of the calculation Kasasa uses to help participating credit unions and community banks keep checking free. The other parts, including using online banking, estatements and automatic bill pay, focused on cutting the costs associated with checking accounts.

Representatives from BancVue or Kasasa could not be reached for comment on the development before press time.