Because such open-platform payment providers as Pay Pal Inc., IP Commerce Inc., Inc. and Ixaris Systems Ltd. are moving into new markets such as mobile commerce to provide secure payment systems to merchants, they should carefully monitor their susceptibility to fraud risk and potential market changes, a new report suggests.

One risk associated with some open-payment platforms includes the option to accept payments via the automated clearinghouse network, Julie Conroy McNelley, an analyst for Boston-based Aite Group LLC, writes in the December report. ACH-based transactions provide a low-cost alternative to card payments, but if banks raise ACH fees to compete with card fees (see story), it could jeopardize a number of these payment models, she explains.

Providers also should improve their online security, McNelley says. Most providers rely on usernames and passwords for transactions, which often are weak forms of authentications that are easy to exploit, McNelley contends.

Several methods, however, may help providers to eradicate fraud risk to make the platforms more secure for users. These options include Internet protocol address screening, swiping a fingerprint on a print reader to access the payment system at the point of sale, analysis of processed transactions to look for suspicious activity, and verification of the payment account against algorithms and external databases, McNelley explains in the report.

Even with fraud-risk concerns, activity within the alternative payments market continues to increase, according to McNelley. Aite estimates by 2015, alternative payment providers globally will process $35 billion in gross dollar volume per year, she writes.

If providers can control the fraud-risk issues, open-payment platforms may provide merchants with opportunities to “consolidate their payments business with one payments provider,” McNelley explains in the report. For example, some merchants may need multiple payment vendors for point-of-sale, online and mobile-based transactions. Alternative payment providers are able to consolidate each payment option within one system, which may provide savings in both time and money, McNelley contends.

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