More electronic funds transfer networks are supporting Internet PIN payments to capture transactions otherwise lost to alternative payment methods that use the automated clearing house system for settlement.
Merchants should be eager to accept PIN debit transactions online to reduce transaction costs, thanks to lower interchange rates and decreased chargeback risk, executives from companies offering these products said. At least one independent sales organization said it believes Internet PIN debit already has helped it gain business it would have lost to competitors.
However, the determining factor for consumers might rest with their comfort in entering PIN codes in an environment other than at the point of sale or an automated teller machine.
Acculynk Inc.'s PaySecure service has sprinted to the front of the pack in the race to determine which product gains universal acceptance among consumers and merchants. Nine EFT networks support PaySecure — Accel/Exchange, Alaska Option, Credit Union 24, Maestro, NetWorks, NYCE, Pulse and Shazam. A thousand merchants accept PaySecure transactions.
Acculynk enables consumers to use PIN debit cards to make purchases online by integrating its PaySecure software into a merchant's online checkout system. Cardholders enter their four or six digit PINs into a virtual PIN pad that appears on-screen.
Card-not-present signature debit rates set by Visa Inc. and MasterCard Inc. typically range from 1.64% to 2.2% of the sale, depending on the type of transaction, according to Acculynk. The final price to the merchant for PaySecure typically is 20% to 40% lower than what they would pay for card-not-present signature debit, Acculynk has said in the past.
The EFT networks set the PIN debit interchange rates, which determine how much the issuer receives from the merchant's bank for the transaction.
The acquiring bank then passes the expense along to the retailer as part of the discount rate, which also covers costs for processing and other services, including those provided by the supplier of the PIN debit payment service.
Adaptive Payments is the latest entry into the Internet PIN debit market with its E-Commerce Checkout service. The Fort Lauderdale, Fla., payment authentication company has developed technology that uses any phone to help verify Internet PIN debit transactions conducted at participating merchant websites.
Merchants integrate the E-commerce Checkout system into their checkout software. To complete an E-commerce Checkout transaction, consumers enter their phone number in a dedicated field on a retailer's checkout page. The shoppers then receive a phone call from an automated system to verify transaction details, and they enter a PIN using the phone keypad to complete the transaction.
A hardware-security module on Adaptive's back-end system encrypts the PIN, which Adaptive sends to a payment gateway to begin the processing cycle. Currently, only Shazam supports the system.
Adaptive has not announced merchant partners.
Another online PIN debit firm, HomeATM ePayment Solutions, has modified its business model several times over the past two years.
The Toronto company has no plans to abandon enabling PIN debit transactions at home with its card-swipe device and PIN pad.
It is now promoting an "anywhere commerce" model in which merchants such as flea market vendors may use HomeATM's device with a mobile phone, laptop and even Apple Inc.'s iPad to conduct transactions.
Merchants could use the device with an existing processor relationship or with HomeATM's processing options that include eFunds Corp., a subsidiary of Fidelity National Information Services Inc.
FIS' NYCE debit network has taken a slightly different approach to Internet PIN debit transactions.
Its SafeDebit creates a virtual debit card for one-time use and automatically fills in the required payment fields on the merchant's checkout screen. No PIN is required, but the consumer instead must type in a user name and password.
Last year, CardinalCommerce Corp. began offering its merchant partners the ability to add SafeDebit to their online checkout process.
This is NYCE's second foray into attempting to enable PIN debit purchases on the Internet.
The previous version of SafeDebit, launched a decade ago, used a CD-ROM to provide PIN information for authentication, but it failed to achieve any market momentum.
THE ISO ADVANTAGE
In April, Acculynk launched an ISO reseller program to enable companies to sell signature and Internet PIN debit processing as a package and to pursue the card-not-present and Internet merchant markets strategically, said Nandan Sheth, Acculynk's president.
The Atlanta company's expanded product, PaySecure Plus, includes credit and debit card processing and Internet PIN debit transaction processing.
Elavon Inc., an Atlanta processor owned by U.S. Bancorp, is providing card processing services for Acculynk, Sheth said.
JetPay LLC of Dallas is one of the few merchant services providers to publicly promote itself as a PaySecure supporter. JetPay has offered PaySecure to merchants since September and determined that the product gives the company an advantage in the marketplace, claims its chairman, Trent Voigt. JetPay mostly deals with Internet-based businesses.
Internet PIN debit's allure forced one merchant to rethink a commitment it was about to make with a bigger transaction processor that did not offer PaySecure, Voigt said. JetPay also is a processor.
"Some accounts we didn't win because we weren't the bigger company," Voigt said. "Now we can go back to those accounts, ask them if they want to do [Internet] PIN debit and process those transactions."
IS IT SAFE?
Consumers need to at least perceive that such products are safe before they use them en masse, said James Van Dyke, founder and president of Javelin Strategy and Research of Pleasanton, Calif.
"Security is, without a doubt, the top inhibitor to more online shopping, and it's the top determinant of [which consumers] adopt what payment method when they do shop online," he said.
Adaptive Payments integrated a phone into its authentication process because it views browser-based PIN debit transactions as risky, according to Ralph Bianco, its chief operating officer.
"The question really is, 'how safe is the Internet and the entry of PINs?' " Bianco said. "We know that we can hack any browser session using readily available tools."
Acculynk repeatedly has stated that PaySecure, which is browser based, is safe, though analysts still question PaySecure's security.
Last year, Avivah Litan, vice president of Gartner Inc. in Stamford, Conn., spoke out against any software or Web-based PIN-entry products.
"I would highly recommend [to any consumer] not entering their PIN anywhere on the Internet unless [the system is] hardware based," she said.
EFT network executives seem to be comfortable with PaySecure, and some networks have been testing the product for more than a year.
Last year, Fiserv Inc.'s Accel/Exchange became the first to roll out the service.
"We like this model because it doesn't cut out the bank," said Michael Kelly, the general manager of Accel/Exchange. "There are a couple of other networks that have aligned with PayPal, but we don't think that is the right model."
In April 2009, Javelin conducted a survey that found 80% of participants would use PaySecure if a trusted merchant presented it as a checkout option.
Javelin surveyed 500 signature debit card users who had made online purchases in the previous year.
Survey participants used PaySecure for a mock online purchase and then answered questions about their experience using the product.
Adaptive's own internal research indicated consumers would have no issue entering a PIN through a phone.
One aspect Internet PIN debit technology has in its favor is that consumers already are familiar with the transaction process, said Dan Kramer, Shazam's senior vice president of marketing and merchant services.
"Typically, consumers are already comfortable entering their PIN in the phone when they want to check account information," he said.
In the end, it would be up to Adaptive, Shazam and others to raise consumers' comfort levels in entering PINs in an environment outside the traditional brick-and-mortar setting, Kramer said.