Metavante Technologies Inc.'s NYCE Payments Network LLC unit is planning to begin a pilot test of its SafeDebit online payments system by the end of the year.
The infrastructure is largely in place, and NYCE's president, Steve Rathgaber, said he expects a commercial rollout to merchants of all sizes, starting in the first quarter of 2010.
Rathgaber said that consumers are concerned about the security of online transactions, and that SafeDebit could make them more willing to use their debit cards for purchases made through the Internet.
"The whole premise of SafeDebit is to provide a more secure mechanism, through the use of pseudo numbers and one-time passwords to eliminate the need to use a PIN or anything that is subject to easy theft," Rathgaber said.
The SafeDebit system generates virtual debit card numbers for one-time use and automatically fills in the required payment fields on participating merchants' checkout screens. No PIN is required to initiate transactions, but the consumer must enter a user name and password, much like authenticating themselves to use online banking sites.
NYCE is hoping that SafeDebit can help banks regain a share of the online payments that are currently made through eBay Inc.'s PayPal Inc. unit
According to a recent survey commissioned by NYCE, a significant percentage of people who made more than three online purchases per year identified PayPal as their preferred method of payment; the survey did not say how many online shoppers use PayPal, but it did find that 59% of PayPal users cited security as their main reason for doing so.
The marketing research firm Analytica Inc. surveyed 2,500 consumers online and by telephone between December 2008 and February 2009.
PayPal seems to have achieved a reputation for security among consumers who use it "because of the way it manages the credentials and hides the data," Rathgaber said.
SafeDebit can help issuers recapture transaction volume and interchange lost to such alternative payment methods, including PayPal and Amazon.com Inc.'s Amazon Payments service, Rathgaber said.
"There is an opportunity to reclaim that share with the right product offering," he said.
Bruce Cundiff, a director of payments research and consulting at Javelin Strategy and Research, said SafeDebit could boost banks' revenue.
Cundiff said that online PIN debit systems could become more popular with consumers who are concerned about security, as long as the systems can avoid data breaches and "stay out of the papers."
In a recent review of alternative online payment systems, Cundiff gave SafeDebit four stars out of five.
One challenge for NYCE is determining the correct interchange rate. "They are trying to decide if the [rate] is going to be somewhere between a PIN debit and signature debit transaction," he said. "They need to find that balance."
Pushback from banks could also threaten online PIN payments, he said. "If banks engage in "anti-PIN steering," as they've done with merchants, "it will be an uphill battle for e-commerce PIN debit to succeed," Cundiff said.
NYCE is also testing an online debit system from Acculynk Inc. called PaySecure, which enables consumers to enter their PIN by clicking their mouse on a virtual PIN pad that is displayed on their computer screens during the checkout process.
"The history of NYCE is that they are very flexible, and they are willing to try a number of different options and see what works," Cundiff said.
NYCE's mission "is to provide value to our financial institutions and other constituents by facilitating the best connectivity possible," Rathgaber said.
SafeDebit will be NYCE's preferred product, but the company also will support PaySecure if a bank wants it, he said. "We're merely facilitating a gateway to that environment."
This is NYCE's second foray into attempting to enable PIN debit purchases on the Internet. The previous version of SafeDebit used a CD-ROM to provide PIN information for authentication, but it failed to achieve any market momentum.