A consumer using a PIN-debit card generally can count on a relatively high level of security and low level of technical problems associated with processing the transaction. Those have been the strong links in PIN-debit networks’ chains for years.

The missing link, however, has been the inability to move the PIN-debit process into the mobile-payment environment.

Shazam network believes it has “found” that link through software from Adaptive Payments. The Des Moines, Iowa-based electronic funds transfer network on Jan. 25 alerted the nearly 1,500 financial institution issuers it serves that it will make the point-of-sale software available to merchants so they may accept PIN debit, signature debit and credit card transactions using Apple Inc. devices or handsets that use Google Inc.’s Android operating system.

The Shazam network, supported by banks and credit unions in 30 states, will promote the software titled Pentagon to retailers who would benefit from its mobile capabilities when combined with a card reader attached to a mobile device.

Adaptive Payments supplies the readers, which merchants can purchase for about $40. Merchants need only the mobile device and the attachable card reader to use the Pentagon system, which has been in beta testing and is ready for general availability to acquiring and processing banks, Shazam announced.

The significance of Shazam’s announcement was not lost on industry observers.

“This is exactly what Shazam needed to do, to allow PIN debit to take place in mobile payments,” industry analyst Todd Ablowitz, president of Centennial, Colo.-based Double Diamond Group, LLC, tells PaymentsSource.

With many different companies supporting mobile payments and card readers that attach to mobile devices, it is important for PIN-debit networks to gain their foothold, Ablowitz contends. This sort of development could move toward a future in which EMV chip-and-PIN could be accepted on cell phones, he adds.

Other companies should not be fooled into thinking Shazam’s network size is not significant, Ablowitz adds. “Shazam has its market share, and this protects that market share and gives it a chance to increase,” he says.

The Adaptive Payments Pentagon software Shazam is offering includes a secure authentication process that is the first application available that uses the consumer’s phone to access the cardholder PIN, Dan Kramer, Shazam senior vice president of marketing and merchant services, tells PaymentsSource.

PaymentsSource first reported Adaptive Payments’ initial development of the Pentagon software and card reader for mobile devices last August, about six months after Shazam announced its strategic investments in Adaptive (see story).

Most importantly, the Adaptive Payments software operates an “outside-of-band” authentication technology through integrated voice response, meaning the PIN provided through the customer’s mobile phone moves along a second communications channel and is never stored on the phone or with the cardholder’s data or personal information, Kramer says.

Retailers who avoid traditional point-of-sale terminals and checkout lines, or those who do their work on the road, such as plumbers or delivery services, could accept PIN debit transactions with Pentagon, Kramer adds.

The retailer would swipe the consumer’s magnetic stripe PIN-debit card through the card reader attached to the mobile device to begin the transaction. The consumer then receives a call, asking to authorize the payment and providing prompts to enter the PIN. The PIN goes through the integrated voice response band to the bank, and the consumer is told the PIN has been accepted. Moments later, a text message appears on the consumer phone, noting transaction approval and the name of the business where it took place, Kramer explains.

“The transaction takes about the same amount of time it would if the customer was at a traditional point-of-sale terminal,” Kramer says.

Consumers making online purchases with a merchant using the Pentagon software would take part in the same process, except the call to the customer cell phone would occur after the customer clicks “debit” on the payment page, Kramer notes.

“PIN-debit acceptance was an important process to make available to acquiring customers,” Kramer says. “It’s a process for the financial institutions to offer to their merchant portfolios.”

Shazam’s work with Fort Lauderdale, Fla.-based Adaptive Payments illustrates the network’s desire to create technology to make PINs acceptable for mobile and online payments, Kramer says.

“A lot of nonbank institutions are trying to occupy that space, and banks should maintain a hold on the PIN debit transactions,” Kramer says.

For the time being, Shazam remains content to offer a technology that still relies on mag-stripe card readers and an option for card-not-present transactions, Kramer notes.

“We are not doing contactless readers with this technology, and there are no cloud-based facets with this system because, at this time, we just don’t feel cloud systems are secure enough,” Kramer adds.

Shazam also announced it was offering a discount rate of 1% for PIN debit transactions, on top of interchange fees, for all merchants using Pentagon.

The system follows Payment Card Industry data security standards compliance at each step through Adaptive Payments’ “5D Secure” dual-channel authentication technology, Kramer notes. In particular, the system follows out-of-band channel guidelines for using a phone as a PIN-entry device.

Earlier this year, Shazam introduced software that enables consumers to make multiple PIN debit transactions online (see story).

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