PIN-debit payments initiated online slowly, but steadily, are gaining traction in the marketplace as several companies have introduced products intended to bring more security to online transactions.
Various electronic funds transfer networks are supporting the technology with the hope the products will help them and their member banks capture transactions otherwise lost to the likes of PayPal Inc. and other alternative payment methods that use the automated clearinghouse system for settlement.
Merchants should be eager to accept PIN-debit transactions online to reduce transaction costs, thanks to lower interchange rates and decreased charge-back risk, say executives from companies offering these products.
At least one ISO believes Internet PIN-debit already has helped it gain business it would have lost to competitors.
Indeed, Internet PIN-debit’s success likely will hinge on widespread consumer and merchant adoption. The determining factor for consumers might might rest with their comfort in entering their PINs in an environment other than at the point of sale or at an ATM.
Acculynk Inc.’s PaySecure service has sprinted to the front of the pack in the race to determine which product gains universal acceptance among consumers and merchants. Nine EFT networks support PaySecure–Accel/Exchange, Alaska
Option, Credit Union 24, Maestro, NetWorks, NYCE, Pulse and Shazam. Some 1,000 merchants, including such airlines as AirTran Airways and Spirit
Airlines, accept PaySecure transactions.
Acculynk enables consumers to use PIN-debit cards to make purchases online by integrating its PaySecure software into a merchant’s online-checkout system. Cardholders click their computer’s mouse to enter their four or six-digit PINs into a virtual PIN pad that appears on the computer’s monitor.
Acculynk touts to merchants the lower interchange rates PaySecure offers.
Card-not-present signature-debit rates set by Visa Inc. and MasterCard Worldwide typically range from 1.64% to 2.2% of the sale, depending on the type of transaction, according to Acculynk. The final price to the merchant for PaySecure typically is 20% to 40% lower that what they would pay for card-not-present signature debit, Acculynk has stated in the past.
The EFT networks set the PIN-debit interchange rates, which determine how much the issuer receives from the merchant’s bank for the transaction. The acquiring bank then passes the expense along to the retailer as part of the discount rate, which also covers costs for processing and other services, including those provided by the supplier of the PIN-debit payment service.
Adaptive Payments is the latest entry to the Internet PIN-debit market with its E-Commerce Checkout service. The Ft. Lauderdale, Fla.-based payment-authentication company has developed technology that uses any phone to help verify Internet PIN-debit transactions conducted at participating merchant websites.
Merchants integrate the E-commerce Checkout system into their checkout software. To complete an E-commerce Checkout transaction, consumers enter their phone number in a dedicated field on a retailer’s checkout page. The shoppers then receive a phone call from an automated system to verify transaction details, and they enter a PIN using the phone keypad to complete the transaction.
A hardware-security module on Adaptive’s back-end system encrypts the PIN, which Adaptive sends to a payment gateway to begin the processing cycle. Currently, only Shazam supports the system. Adaptive has not announced merchant partners.
Another online PIN-debit firm, HomeATM
ePayment Solutions, has modified its business model several times over the past two years. The Toronto-based company has no plans to abandon enabling PIN-debit transactions at home with its PCI-certified personal card-swipe device and PIN pad. But it is now promoting an “anywhere commerce” model in which merchants such as flea-market vendors may use HomeATM’s device with a mobile phone, laptop and even Apple Inc.’s iPad to conduct transactions.
HomeATM intends to distribute its devices via a third-party, such as an ISO.
Merchants could use the device with an existing processor relationship or with HomeATM’s processing options that include eFunds Corp., a subsidiary of Fidelity National Information Services Inc. HomeATM was unavailable to comment on its network and merchant relationships.
NYCE has taken a slightly different approach to Internet PIN-debit transactions. Its latest incarnation of SafeDebit creates virtual debit card information for one-time use and automatically fills in the required payment fields on the merchant’s checkout screen. No PIN is required, but the consumer still must type in a user name and password similar to online banking login credentials.
Last year, CardinalCommerce Corp. began offering its merchant partners the ability to add SafeDebit to their online checkout process.
NYCE did not provide an update on its plans.
It is NYCE’s second foray into attempting to enable PIN-debit purchases on the Internet. The
previous version of SafeDebit, launched a decade ago, used a CD-ROM to provide PIN information for authentication, but it failed to achieve any market momentum.
The ISO Advantage
In April, Acculynk launched an ISO reseller program to enable companies to sell signature- and Internet PIN-debit processing as a package and to pursue the card-not-present and Internet merchant markets strategically, says Nandan Sheth, Acculynk president.
The Atlanta-based company’s expanded product, PaySecure Plus, includes credit and debit card processing and Internet PIN-debit transaction processing. Elavon Inc., an Atlanta-based processor, is providing card-processing services for Acculynk, says Sheth.
Dallas-based JetPay LLC is one of the few merchant-services providers to publicly promote itself as a PaySecure supporter. JetPay has offered
PaySecure to merchants since September and quickly discovered the product gives the company an advantage in the marketplace, claims company Chairman Trent Voigt. JetPay mostly deals with Internet-based businesses.
Internet PIN-debit’s allure forced one merchant to rethink a commitment it was about to make with a bigger transaction processor that did not offer PaySecure, Voigt says. JetPay also is a processor.
Potential new clients are intrigued with Internet PIN-debit’s potential because it helps merchants tap into consumers who have no other way to pay online using their debit cards, Voigt says. Prospective clients see the opportunity and then want to understand it better as they evaluate potential partnerships, he adds.
PaySecure has enabled JetPay to go back to merchants it previously failed to secure as processing partners.
“Some accounts we didn’t win because we weren’t the bigger company,” Voigt says. “Now we can go back to those accounts, ask them if they want to do [Internet] PIN-debit and process those transactions.”
The goal then is to capture that client’s entire business once the contract expires with its existing processor, Voigt says.
JetPay believes it has an advantage in the marketplace because it offers what it calls “least-cost routing.” The transaction amount determines whether the merchant’s online checkout process will present PaySecure as an option. “Sometimes it’s cheaper to process the transaction” as signature-debit, Voigt says.
Internet PIN-debit will not sell itself to merchants, despite its potential to save them money, Voigt cautions, noting the product requires ISOs to provide some education to potential clients. “They want to believe in it,” he adds.
It also helps that merchants “are always asking, ‘what’s the next thing we need for alternative payments, and how do we save money?’” Voigt adds.
The demand for Internet PIN-debit will grow based on a couple of factors such as credit worthiness and consumer fiscal responsibility, Voigt believes.
JetPay merchants using products such as Bill Me Later fail to secure many approvals because many consumers are not creditworthy. “We figured out the people who didn’t have credit cards also don’t have credit worthiness,” Voigt says. Those consumers then turn to a debit card to make high-ticket purchases, such as airline tickets.
Voigt believes JetPay’s partner airlines already have experienced steady success with PaySecure because airline-ticket purchases are planned in
advance, allowing consumers to save money for a trip. “That’s different than buying a TV, which is really an impulse buy,” he says.
Fiscally responsible consumers with little to no debt also will find Internet PIN-debit appealing, Voigt contends. “You have a chunk of consumers that believe that you shouldn’t have debt” based on social and economic beliefs, he says. “There are consumers making six figures who don’t have credit cards because they choose not to have them.”
Is It Safe?
Security remains a key issue concerning whether consumers will adopt Internet PIN-debit payments.
“Security is, without a doubt, the top inhibitor to more online shopping, and it’s the top determinant of [which consumers] adopt what payment method when they do shop online,” says
James Van Dyke, founder and president of Javelin Strategy and Research of Pleasanton, Calif.
But consumers need to at least perceive that such products are safe before they use them en masse, Van Dyke adds.
Adaptive Payments decided to integrate a phone into its authentication process because it views Internet browser-based PIN-debit transactions as risky, according to Ralph Bianco, the company’s chief operating officer.
“The question really is, how safe is the Internet and the entry of PINs?” Bianco says. “We know that we can hack any browser session using readily available tools.”
Acculynk repeatedly has stated PaySecure, which is browser-based, is safe, though analysts still question PaySecure’s security.
Last year, Avivah Litan, vice president of Stamford, Conn.-based Gartner Inc., came out against any software or Web-based PIN-entry products. “I would highly recommend [to any consumer] not entering their PIN anywhere on the Internet unless [the system is] hardware based,” she said.
EFT network executives seem to be comfortable with PaySecure, and some networks have been testing the product for more than a year.
Last year, Fiserv Inc.’s Accel/Exchange became the first to roll out the service. The network decided to support PaySecure because the product helps banks recapture transactions lost to alternative-payment companies such as PayPal.
“We like this model because it doesn’t cut out the bank,” says Michael Kelly, Accel/Exchange general manager. “There are a couple of other networks that have aligned with PayPal, but we don’t think that is the right model.”
Pulse piloted PaySecure for almost a year, and the test helped the network validate a couple of assumptions it had about the Acculynk product, says Judith McGuire, Pulse senior vice president of product management. Consumers showed they would use the payment option when given the chance, and they feel comfortable with the process, she says.
In April 2009, Javelin Strategy and Research conducted a survey that found 80% of participants would use PaySecure if a trusted merchant presented it as a checkout option. Javelin surveyed 500 signature-debit cards users who had made online purchases in the previous year. Survey participants used PaySecure for a mock online purchase and then answered questions about their experience using the product.
Adaptive Payments’ own internal research indicated consumers would have no issue entering a PIN through a phone.
One aspect Internet PIN-debit technology has in its favor is that consumers already are familiar with the transaction process, says Dan Kramer, Shazam senior vice president of marketing and merchant services. “Typically, consumers are already comfortable entering their PIN in the phone when they want to check account information,” he says.
In the end, it would be up to Adaptive
Payments, Shazam and others to raise consumers’ comfort levels in entering PINs in an environment outside the traditional brick-and-mortar setting, Kramer says.
At this point, observers generally believe determining which Internet PIN-debit product will endure is difficult because the alternative payments space constantly is changing. It should come as no surprise, however, that companies are trying to duplicate what consumers already are familiar doing.
“It makes a lot of sense to try a replicate and build upon what’s worked for some 40 years in the physical PIN-debit world,” says Paul Tomasofsky, president and executive director of the Secure Remote Payment Council. The organization is a trade group devoted to the growth, development and market adoption of Internet-based debit transactions and mobile-payment methods
Some observers believe widespread adoption among merchants could happen if a major player such as a Best Buy Co. Inc. adopts a particular product. At the moment, it does not appear any company is close to announcing such a partnership.
Meantime, Acculynk and Adaptive Payments are moving forward with their respective plans.
Adaptive Payments is speaking with other PIN-debit networks, merchants and financial institutions about E-commerce Checkout. The company expects to announce two more networks soon.
“We’re not asking anyone to choose [between Acculynk and Adaptive],” Bianco says. “We’re just asking for a place at the table.”
Acculynk recently hired Eric M. Hoffman, former senior vice president at Bank of America Corp.’s merchant services, as the company’s executive vice president of national merchant sales. The company is striving to make 60 million debit cards eligible to use the service by the end of the year. As of June, it had between 13.5 million and 20 million, according to CEO Ashish Bahl.
Indeed, technology is bringing consumers different options to shop on the Internet. Internet PIN-debit products represent an opportunity for ISOs and agents to make more revenue thanks to changing consumer payment preferences and choices.