MasterCard International has arranged for discounts on point of sale terminals from Verifone Inc. for merchants who agree to move to the card association's electronic draft capture system.

The discount is designed to promote electronic credit card authorization at the nearly one million U.S. merchants that currently rely on paper-based processing.

Visa U.S.A has also secured POS terminal discounts for merchants who move to electronic draft capture systems.

Paper-based processing is more cumbersome and more expensive for the card associations to support than electronic authorization.

"We certainly understand the economics involved with moving a merchant from paper to electronics," said John Mamalakis, vice president of sales for MasterCard's automated point of sale program, known as MAPP.

Mr. Mamalakis maintains that MasterCard's host draft capture system, which supports inexpensive first-generation terminals like Verifone's Zon Jr., can make a merchant's transition from paper to electronic authorization financially and operationally attractive.

One of the ways electronic draft capture reduces merchant costs is by reducing their exposure to fraud.

MasterCard rules require that merchants who wish to be protected against charge-back costs, which occur when a cardholder denies making a purchase, obtain authorization for all transactions either through an electronic terminal or by phone.

Phone Authorization Can Take Minutes

Of these two options, electronic authorization is faster and cheaper for the vast majority of merchants. Electronic authorizations take about 20 seconds, while over-the-phone authorization can take several minutes, according to MasterCard.

Electronic authorization also gives merchants the ability to guard against authorizing transactions from invalid cards.

MasterCard and Visa U.S.A. for years jointly published paper lists of invalid card numbers.

Paper Lists Replaced by Electronics

But, in April, the associations stopped issuing those lists and replaced them with an on-line invalid card bulletin that is only available to merchants with POS terminals. "The recent elimination of printed warning bulletins sends a strong message to U.S. merchants that manual methods are no longer a viable means of authorizing credit," said Roger Bertman, vice president of marketing for Verifone, which is based in Redwood City, Calif. Verifone is by far the leading provider of point of sale terminals to U.S. merchants. The company's net revenues totaled $258.9 million last year.

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