Banks are worried that a push to implement new technologies for processing debit and credit card transactions could hurt their bottom line, according to a new study.

The study, by researcher Paul Martaus of Clearwater, Fla., and Payment Systems Inc. of Tampa, Fla., gauged industry support for a range of new security technologies weighed by Visa and MasterCard International. These included so-called PIN pads so consumers can enter identification codes at the point of sale, and electronic "water-marking" of cards to prevent counterfeiting.

Despite dire warnings from card associations that new technologies are needed to thwart soaring fraud, executives interviewed by Mr. Martaus said many of the proposed solutions are inadequate.

Cost-Benefit Problem

"The industry has performed innumerable cost-benefit analyses and come up with the conclusion that new of these technological innovations are cost effective," said Mr. Martaus, who runs the research firm Martaus & Associates.

Martaus interviewed 50 executives from leading merchant banks and third-party processors for the report, which was published last week.

The study was sponsored by Verifone Inc., Redwood City, Calif., a leading manufacturer of point-of-sale terminals.

Mr. Martaus said merchant banks and processors understand that fraud must be controlled. But they are concerned that the proposed solutions are not cost effective.

Profits Are Skimpy

Making a business case for new investment is difficult because profits in the merchant side of the credit card business are thin. Mr. Martaus said banks were earning pretax profits of 50 basis points or less on merchant transaction fees, less than a fifth of profits from the card-issuing side of the business.

And many of the proposed security upgrades help card-issuing banks more than merchant banks, Mr. Martaus said.

Among the technologies the credit card industry is preparing to support is Payment System 2000, a new method for processing credit card transactions that Visa plans to introduce next spring. It is intended to reduce errors and cancellations.

Also, demand is rising for new point-of-sale terminals that support both debit and credit cards. This integration can require costly computer upgrades.

The High Cost of PINs

In about five years, Visa expects banks and merchants to begin using personal identification numbers in credit card transactions, said Christoph Abt, a company spokesman. PINs are now common in automated teller machine transactions, but will require costly new equipment for credit purchases.

Also under consideration are new technologies to prevent unauthorized credit card duplication, including so-called water-marking, whereby advanced magnetic coding technology is used to thwart unauthorized copying of a credit card's magnetic stripe.

The problem is that someone must pay for these upgrades. And the investments could be large, Mr. Martaus warned.

If merchants pay the lion's share of the cost, their expenses could rise to the point where their use of automation falls off. If merchant banks pay too much, their already thin profits could evaporate, Mr. Martaus said.

"There's concern in the industry over this," he said.

But Mr. Abt said that the technological changes will be so gradual that merchants, banks, and technology companies will be able to easily adapt.

He added that Visa will implement pricing incentives that give merchants an economic incentive to upgrade equipment.

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