TM Direct was supposed to be a breakthrough for online PIN-based debit payments. The Dallas company - launched in 1999 - had an encrypted PC application that could turn consumers' PCs into secure transactional endpoints, just like at an ATM or POS store terminal.
But after biometric payments kingpin Pay By Touch snapped up ATM Direct for $30.5 million the software firm never got beyond some minor merchant deals through a processing agreement with Fiserv's ACCEL/Exchange network. Its coda came earlier this year in the ignominious collapse of PBT into bankruptcy court.
Or so it seemed. Shortly after Pay By Touch's disintegration, an Atlanta company bought up the ATM Direct assets at a fire-sale price of $600,000. Now, less than six months later, it's back on the street with a new name - Acculynk - along with up to four planned deals with acquirers that put it back on track to becoming an alternative to both signature debit/credit card options as well as non-bank payments schemes such as eBay's PayPal business.
"Banks are recognizing they need to pay attention to the [alternative payment] trend," says Acculynk president Nandan Sheth, who has already announced a new agreement with ACCEL/Exchange. "The first thing that is real and meaningful, and has scale, is Internet PIN debit."
That's nothing bankers haven't heard before; plans for adopting PIN-based transactions online go back nearly a decade. Most never got past customer adoption hurdles, or required expensive desktop hardware. They were also hamstrung by stringent card-not-present transaction rules that made PIN-enabled e-commerce all but impossible for EFT networks to secure.
But with Acculynk's (re)debut, plus a planned iteration of a new NYCE Payments Network-backed program to incorporate one-time-use PINs, online PIN debit's time may finally have come.
"I'm pretty positive about it," says Javelin Strategy & Research analyst Bruce Cundiff, who just authored the firm's 2008 outlook on the online payments industry. "With the state we find ourselves, in terms of the credit space, I think a lot more people will be using debit cards [online]."
What Cundiff points to are results of Javelin's 2008 Online Payments Forecast survey, which last month unearthed what the economic crisis has wrought in terms of declining credit-card transactions online. Not only are people cutting back on discretionary spending, but their credit limits are freezing as well (Thirty-seven percent of users said they're using credit cards less often). Meanwhile, electronic spending directly from bank accounts is climbing, which means that the $148 billion online transaction market is increasingly comprised of alternative payments such as PayPal, prepaid cards and signature debit.
Sheth says it's a perfect environment for PIN debit solutions, which could attract banks' merchant clients looking to shave off interchange fees from credit and signature debit options; there are also some 80 million PIN-only debit cards that carry no card association ties. "The cost to adopt this payment type is negligible or zero," says Sheth. "They're riding the same rails they have established today, and there's nothing for banks to change on the back end."
The only major changes afoot appear to be the vendor's own business model. In its original product, ATM Direct made consumers download an ActiveX control program to initiate the encrypted PIN-pad screen - not a way to pass many users' smell test for malware. When it was a Pay By Touch company, former management attempted to build a revenue model that skewed fees and interchange for the company, but didn't work for issuers, according to Sheth. Its biggest mistake may have been trying to collar merchants into signing separate processing agreements for the PIN debit transactions. "That's an absurd proposition," says Sheth, who points out those deals would have violated those clients' existing and contractually exclusive card-processing deals with the likes of Chase Paymentech or First Data.
Acculynk's new business plan includes the acquirers in the loop, with equitable revenue across all parties to encourage end-user and merchant adoption. In another change, the encrypted PIN pad application is embedded into the host's checkout page. Factor in a one to five percent sales lift, lower fraud and chargeback costs, says Sheth, and PIN debit's potential is strong despite its iffy track record.
Acculynk expects to announce other EFT network deals soon. One of those will be Metavante's NYCE network, which confirmed it plans to process Acculynk transactions. NYCE is also getting ready to launch its own new Internet payments product: a next-generation SafeDebit system which will issue consumers limited-use PINs for e-merchant transactions.