This article appears in the July 23, 2009, edition of ISO&Agent Weekly.

HomeATM ePayment Solutions is changing the business model for distribution of its personal card-swipe device and PIN pad.

Instead of HomeATM relying on merchants to distribute the devices to their customers, the company plans to license its product to large processors and merchant acquirers, according to Kenneth Mages, HomeATM chairman and CEO. The processors and acquirers will then resell the device to merchants for point-of-sale terminal use, he says.

The previous business model focused on distributing the devices to consumers directly and to merchants to distribute to their clients for use at home.

HomeATM does not have a direct-ISO program, says Mages. It is "more logical to go through the acquirers and processors of the world" and use their sales channels, he says. HomeATM is in discussions with "two or three" large processors, all of which have ISO programs themselves, says Mages.

"We're going to license our hardware to [large] processors to try and get our product in the market instead of HomeATM being the lead sales generator for the device," says Mages, describing the company's effort to bring its Safe-T-PIN device to mass distribution on its own as an "uphill battle that quite frankly, we can't win."

HomeATM has set the suggested retail price for the terminal at $49.95. Safe-T-PIN includes a PIN-entry pad and a magnetic-stripe reader, says Mages. The device encrypts cardholder data when the consumer swipes a payment card.

"If you use a netbook along with HomeATM, you now have a [POS system] that rivals anything under $5,000," Mages contends. A netbook is a laptop computer designed primarily for Internet use. Adding computer software to a netbook can help small merchants with retail sales management without the expense of larger POS systems, Mages says.

Changed Business Model

Mages contends the Safe-T-PIN terminal is a low-cost alternative for merchants that do not want to pay for more expensive point-of-sale systems. POS terminal makers VeriFone Holdings Inc. and Hypercom Corp. both declined to comment.

Relying on processors and acquirers for distribution to merchants, however, may be difficult for HomeATM, contends Mike McCormack, executive vice president of Noblett & Associates LLC, a Fort Lauderdale, Fla.-based consultancy.

"My experience in relying on processors and acquirers to distribute new products or services through its sales channels is poor," says McCormack. "We have seen a number of companies attempt this in the past with very little success."

HomeATM, which for 18 months served as the downstream processor for its product's transactions, no longer will be involved in direct payment processing. Montreal-based HomeATM has a relationship with Brookfield, Wis.-based transaction processor eFunds Inc., which is owned by Jacksonville, Fla.-based Fidelity National Information Services Inc.

Mass distribution of its device has remained a challenge for HomeATM from the start and a problem often cited by industry experts.

Javelin Strategy & Research last month, for example, released a report grading alternative payment schemes, and HomeATM's device received one star in its five-star rating system. Safe-T-PIN received the lowest mark of the nine products, including Acculynk's PaySecure software, reviewed by Bruce Cundiff, report author and Javelin director of payments research and consulting.

"Success for the HomeATM solution will be minimal in the context of online retail," Cundiff wrote in the report. "There is potentially a market for B2B transactions, for larger-value remittances, or other high-value transactions."

Mages contends Safe-T-PIN is not an alternative payment because "it implies that it's something that's way out of the box."

"I would argue that what we do is a very traditional point-of-sale transaction using" a certified Payment Card Industry PIN-entry device, he says. The Payment Card Industry Security Council certified Safe-T-PIN in March.

HomeATM is not abandoning its efforts to get devices into consumers' hands, as it also plans to license its device to players in the funds-transfer market.

When used at home by a consumer, HomeATM's device plugs directly into a personal computer USB port. The system requires no installation or software. If a consumer shops online, the merchant's Web site prompts consumers to use the device to swipe their card and enter their PIN to complete a transaction.

Safe-T-PIN uses secure socket layer encryption between a personal computer, HomeATM's data center and a virtual private network between the company's data center and processor. HomeATM claims using hardware for Internet PIN-debit is safer because "it's dually authenticated like it is at the brick-and-mortar stores."

Cundiff defines an alternative payment as anything other than using a credit or signature-debit card to pay online. While he admits it may not be 100% accurate to label Safe-T-PIN as an alternative payment, "saying that the product HomeATM is putting out there is creating an alternative process for consumers to initiate e-commerce transactions is accurate."

Difficulty With Networks

Whatever the distinction, HomeATM is having trouble convincing the electronic funds transfer networks that a HomeATM PIN transaction is no different from a face-to-face PIN transaction at a brick-and-mortar store, according to Mages. The networks worry about disputed transactions, he says.

During the 18 months it processed its transactions, HomeATM "discovered during that time we had zero transactions disputed," Mages says.

"We had no breaches, and we had no fraud," he says.

HomeATM processed more than 70,000 transactions worth about $8 million between January 2008 and the middle of June 2009. Generation Technologies Inc. has found success selling HomeATM's product to Internet retailers under the MiniTeller brand, says Hish Derby, director of technologies with the Burlington, Mass.-based ISO. The merchants interested in the device typically have recurring monthly business from customers, such as online pharmaceutical companies, says Derby.

NYCE Payments Network LLC would not address Mages' contentions, but Steve Rathgaber, NYCE president and chief operating officer, believes Safe-T-PIN is a "viable model."

"There is a market and interest for almost any kind of [payment] product," Rathgaber says. "It's just a question of, in the payments space, is there a large enough interest to make it all worthwhile."

Licensing the hardware to such processors as First Data Corp. and Total System Services Inc. is something that seems to please the networks, Mages says. "If they sell it [to merchants], the networks don't have any questions," he says.

First Data declined to comment about HomeATM, and TSYS did not respond to a request for comment.

Acculynk Model

Meanwhile, Acculynk Inc. continues to gain market momentum. Last month, the Atlanta-based company announced a partnership with Credit Union 24 to pilot PaySecure. Acculynk also is conducting tests with Metavante Technologies Inc.'s NYCE, Fiserv Inc.'s Accel/Exchange and Discover Financial Services' Pulse networks.

2Checkout.com, an authorized reseller for online retailers, and ShoppersChoice.com, a luxury-cooking retailer, also are involved in merchant pilots.

Acculynk is software-based and enables PIN-debit purchases online by integrating its PaySecure software into a merchant's online-checkout system. Cardholders use their computer's mouse to enter their PINs into an Acculynk virtual PIN pad that appears on the monitor.

Acculynk's product has a high likelihood of success, Cundiff wrote in his report. "Merchants will push for this, financial institutions are already involved, and it is a process with which consumers are familiar," he wrote. One factor working against Acculynk is that the company will need to overcome the "financial institution pushback that signature debit generates more revenue and that these will primarily be cannibalized signature debit transactions."

Meghan Boyer, ISO&Agent Weekly associate editor, contributed to this article.

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