This article appears in the April 16, 2009, edition of ISO&Agent Weekly.

HomeATM ePayment Solutions, which has developed a way for shoppers to use plug-in card readers with their home computers to make PIN-debit purchases online, is hoping to expand the number of merchants and consumers that use its product through ISO sales channels.

The Montreal-based company is "unveiling" its product and price points to ISOs at this month's Electronic Transactions Association Annual Meeting and Expo in Las Vegas, says Mitchell Cobrin, HomeATM chief operating officer. 

As profit margins decrease and competition increases in the payments industry, many ISOs are seeking value-add products and services to earn additional revenue. Cobrin believes ISOs can yield additional revenue and increased merchant loyalty by outfitting merchants and their clients with the ability to accept PIN-debit payments online.

Unknown is whether merchants and consumers will accept and use the device, according to analysts.

"We see same-store sales are declining. They're being cannibalized by Web-based transactions," says Cobrin. Selling online PIN-debit capability "will open doors to the ISO community to ensure their longevity and new product innovation," he says.
ISOs earn a flat fee on the sale of a terminal and a per-transaction fee, Cobrin says, declining specify the fee amounts. HomeATM also earns revenue on hardware sales and per transaction, he says.

HomeATM produces a personal card-swipe device and PIN pad that consumers plug directly into a PC's USB port and use for online PIN-debit payments. Merchants also can use the device for point-of-sale transactions at brick-and-mortar locations.

Merchants can purchase the terminals to distribute to their consumer clients or use at retail locations. Consumers also can purchase the terminals directly for their personal use.

The system requires no installation or software for use with consumers' home computers. When consumers check out at a participating merchant's Web site, the site prompts them to use the device to swipe their card and enter their PIN to complete a transaction.

The device is compliant with the Payment Card Industry Data Security Standard.
HomeATM has a relationship with Brookfield, Wis.-based transaction processor eFunds Inc., which is owned by Jacksonville, Fla.-based Fidelity National Information Services Inc., to switch the transactions.

Cobrin did not reveal the names of any merchants using the device.

Device Distribution

HomeATM has a "two-pronged approach" to getting devices in the market, says Cobrin. "There is the e-commerce ISO… [and] then there is the brick-and-mortar ISO," he says. The first approach is to have ISOs sell the device as a point-of-sale terminal for retailers that want to accept PIN and signature-debit payments.

HomeATM had not completed its pricing model for the devices at the time of its interview with ISO&Agent Weekly. "We're trying to get it under $100," says Cobrin.
The second approach is to get brick-and-mortar shoppers to make online purchases using the device.

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.

"We have been able to get out 35,000 units into the U.S." working with 12 online merchants, says Derby. The number of devices in the market "is growing weekly," he says.

The merchants interested in the device typically have recurring monthly business from customers, such as online pharmaceutical companies, says Derby.
Most of the merchants that work with Generation Technologies purchase the devices from the ISO and provide them to customers to enable them to make online purchases, says Jay Srivasan, Generation senior account manager. However, some consumers have purchased them directly from Generation Technologies, he says.

Merchant Benefits

Less-expensive interchange rates should entice merchants to distribute the devices to their customers, contends Kenneth Mages, HomeATM chairman and CEO.
Merchants can save more than 75 basis points on card-present transactions compared with card-not-present, according to a merchant-services guide San Francisco-based Wells Fargo & Co. released last year. For example, swiped card transactions can save merchants $7.50 per $1,000, says John B. Frank, HomeATM executive advisor.

"To put it in perspective, that's a $7.5 million dollar interchange savings for a $1 billion retailer converting its customers to a card-present environment," he says.
"The discounted rates and fees are a lot less than credit card transactions, agrees Derby.

Merchants that provide the devices to their customers can boost client retention, adds Srivasan. "A merchant may decided to send recurring customers a free one after a couple of months, and that locks a customer in," he says. "It helps retain customers."

While it may be easy to convince merchants of the benefits of using the online PIN-debit device, consumer adoption of HomeATM's payment device may be difficult to achieve, says Adil Moussa, an analyst at Boston-based Aite Group LLC. He believes consumers may be unwilling to use such a device.

"People want easier and simpler things to use," he says. "Asking people to have another device on their desk for their online shopping is not really a way to achieve that."

Consumer and merchant adoption will determine HomeATM's success, says Avivah Litan, vice president of Gartner Inc., a Stamford, Conn.-based consultancy.

"It's always the chicken-and-egg problem," Litan says. "Consumers will not start using these devices until merchants accept them, and merchants will not accept them unless there are huge incentives."

Dueling Online PIN-Debit Systems

While HomeATM ePayment Solutions is hoping consumers will embrace Internet PIN-debit purchases using card readers that plug into personal computers, multiple electronic funds transfer networks are testing a software-based system.

Atlanta-based Acculynk Inc. is planning a pilot of its PaySecure product with the Pulse EFT network. Accel/Exchange and NYCE are two other EFT networks piloting PaySecure. Acculynk plans to announce a fourth network soon, says Ashish Bahl, Acculynk CEO.

Acculynk's PaySecure product 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 four-digit PIN into an Acculynk virtual PIN pad that appears on the computer's monitor.

Montreal-based HomeATM produces a personal card-swipe device and PIN pad that consumers plug directly into a PC's USB port and use for online PIN-debit payments.

Hardware Versus Software

Security and privacy analyst Avivah Litan is against any software or Web-based PIN-entry products. "The holy grail for criminals is PINs and ATM cards," says Litan, vice president of Stamford, Conn.-based Gartner Inc. 

"I would highly recommend [to any consumer] not entering their PIN anywhere on the Internet unless it was hardware-based," Litan says.

Montreal-based HomeATM claims using hardware is safer because "it's dually authenticated like it is at the brick-and-mortar stores," says Kenneth Mages, HomeATM chairman and CEO.

HomeATM's device uses secure socket layer encryption between a personal computer, HomeATM's data center, the merchant, and a virtual private network between the company's data center and processor. Secure socket layer encryption establishes a private communication channel that enables encryption of data during transmission, according to VeriSign Inc.

HomeATM acts as the downstream processor, Mages says.

"We also encrypt the track 2 data, which is not done at the retail level," Mages says.
However, hardware-distribution may be a greater hurdle for HomeATM ePayment Solutions to overcome than consumer acceptance as it seeks to expand business for its plug-in card readers that enable shoppers to make PIN-debit purchases online from their home computers, according to Bruce Cundiff, Javelin director of payments research and consulting.

"I think there is viability in the market for both" on-screen PIN-debit Internet-acceptance technology like Acculynk's PaySecure product and device-based products like HomeATM's to succeed, he says. "But I see the issue [for hardware-based technology] being more logistics than consumer acceptance," says Cundiff.

"The distribution of any hardware associated with a method of payment for online transactions hasn't really succeeded in any instance," says Cundiff, citing American Express' distribution failure in 1999 of a chip card reader for consumers who had the first versions of its smart card-enabled Blue Card. "The Blue Card was a marketing success, but the technology part of it was a resounding failure, so I am very skeptical of any solution that requires the distribution of hardware to consumers" he says. 

PaySecure Survey

A survey Javelin Strategy & Research conducted reveals 80% of participants would use Acculynk's PaySecure Internet PIN-debit product if a trusted merchant presents it.

Pleasanton, Calif.-based Javelin surveyed 500 debit card users who made online purchases during the last year. Participants used PaySecure for a mock online purchase and then answered questions about their experience using the product. Acculynk and Pulse commissioned the study. 

Sixty-five percent of participants said they would feel safer buying on the Internet using PaySecure, while 48% would buy more often on the Internet if they could pay using the product. "That 65% is a very strong number from our vantage point versus what a lot of people could have thought" in the aftermath of recent security breaches, Bahl says.

The survey is the first of several research steps the company will conduct regarding the product, an Acculynk spokesperson says.

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