Seizing on the publicity of Internet security breaches and piggy-backing on telephone companies' data bases and billing infrastructure, a new crop of companies is about to launch an offensive against credit cards for Internet retail payment business.
For now, the companies are focusing on small-ticket transactions commonly referred to as micropayments, a niche that Visa International and MasterCard International have been slow to pursue.
While their near-term goals may appear modest, the upstarts already have signed up some heavyweight partners - AT&T Corp. is working with a number of companies in this area - and begun pitching their services to merchants, all with an eye to unseating credit cards as the payment method of choice in Internet commerce.
The companies are also turning to banks, in some cases as partners, in others as a source of executive talent.
Even some of the more advanced companies in the arena are hardly household names. Three companies - Trivnet Inc., iPIN, and eCharge Corp. - have launched pilots or products within the past several months.
All three are based on the same business model. They have developed systems to let Web shoppers pay for digital goods such as software, archived newspaper articles, and music through their Internet service provider, telephone company, or credit card lender. These are existing billing relationships that, with the exception of credit cards, do not involve banks.
They have their work cut out for them, given credit cards' huge head start.
"To a large degree the card companies have won the market for virtual payments by default, because they have an infrastructure in place," said Alex W. Hart, who was MasterCard's president from 1989 to 1994. Credit cards "were the obvious choice, but now a variety of alternatives are beginning to evolve that could take some business away from credit cards," Mr. Hart said.
Seattle-based eCharge may be the brashest of the three companies, to judge by its public statements about wresting market share from Visa and MasterCard. George Fleming, co-founder and chief executive officer of eCharge, has said Visa and MasterCard "will become obsolete" because credit cards were not designed for Internet purchases.
Several recent thefts of credit card accounts from on-line retailers may help eCharge's cause. The accounts of thousands of credit card customers were exposed after a hacker broke into an on-line retailer's data base.
Such developments "are only going to scare more people away from using their cards," said Kenneth Kerr, a Durham, N.C., analyst with Gartner Group.
Moreover, the higher merchant fees in credit card transactions have turned off many e-tailers. eCharge's merchant fee, for example, can cost half as much as the average 2% to 2.5% merchant fees levied by members of Visa and MasterCard.
"Merchants are looking for alternatives" and more protection against fraud, Mr. Kerr said. For example, Internet merchants absorb the loss in a fraudulent credit card transaction. In the off-line world, banks write off fraudulent card transactions.
Visa would not disclose details about its plans to enter the micropayments market, other than to say it will do so shortly and that on-line stored value products are in the offing. MasterCard executives could not be reached for comment.
In the meantime, eCharge, iPIN, and Trivnet are developing products and building up their merchant bases. Linda A. Weber, a vice president at eCharge, said the company plans to launch a new product, eCharge Net Account, in the next few weeks.
"We are a viable alternative to Visa and MasterCard, which have taken a physical-world product and squished it into the virtual world," Ms. Weber said. The eCharge Net Account product will involve a financial institution; customers will be offered loans that can be paid off over time.
Ms. Weber, a former senior CoreStates Financial Corp. executive in charge of Internet technology, said eCharge is negotiating with a financial partner. In typical Internet fashion, eCharge will pay consumers to try eCharge Net Account and initially will offer gift certificates or discounts as incentives.
eCharge recruited another top banking executive, Truett Tate, a 25-year veteran of Citigroup who most recently was in charge of emerging markets worldwide. Mr. Tate was named chief executive officer of eCharge in November.
iPIN, based in San Francisco, has hired banking executives as well, and plans to announce a strategic partnership with a "top U.S. bank," said Geoff Watson, marketing director of iPIN. Bruno Perreault, a former senior vice president of Visa USA, joined iPIN in August along with a former telephone company executive, Scott Ticer.
Mr. Watson said iPIN, which launched its service in France in November, plans to work with all types of companies that have billing relationships with consumers. "At the moment, we are focused on the digital content space because there is a clear need there, but longer-term, there are no limitations within our system that would prevent us from expanding our market," Mr. Watson said.
Santa Clara, Calif.-based Trivnet has not disclosed its major Internet service provider or telephone company partners, but it announced a partnership with Qpass, a Seattle company that facilitates small on-line purchases through credit card bills. Qpass, which has agreements with major U.S. newspapers allowing consumers to purchase individual articles, aligned with Trivnet to expand its payment system.
Like iPIN and eCharge, Trivnet is eyeing the larger Internet payments market. "I don't see micropayments as our niche," said Moti Dolgin, president and chief executive officer.
As the three companies shore up relationships in the United States, international markets have proved viable as well. eCharge has launched its phone product in the United Kingdom, Canada, and Sweden. Trivnet has agreements with The Jerusalem Post through an Internet service provider.