Verification App for PIN Debit Goes to the Phone

A payment-authentication company has developed an application that verifies online PIN-debit transactions by phone.

The Shazam electronic funds network has agreed to be the first to offer Adaptive Payments' five-factor authentication process, which uses cardholder information and transaction data combined with users' PINs. The system also validates consumers' Internet protocol addresses and phones.

Shazam, of Des Moines, will require its partner banks to support transactions made with Adaptive's online PIN-debit system, E-commerce Checkout, according to Dan Kramer, Shazam's senior vice president of marketing and merchant services.

No participating merchants have been announced, but Kramer expects about 80% of Shazam's 1,500 financial institutions to make their cards eligible for the service.

Kramer said that online PIN debit can help the network secure transactions otherwise lost to PayPal Inc. and other alternative payment methods.

The PIN-debit brands "have not been the beneficiaries of online growth," Kramer said.

Merchants integrate the E-commerce Checkout system into their checkout software. To complete an E-commerce Checkout transaction, consumers enter their phone number on a retailer's checkout page. They will receive an automated phone call to verify transaction details, and they enter their PIN through the phone to complete the transaction.

Adaptive also plans to use the technology for bill-payment and funds-transfer services that have yet to be announced.

The process differs from Acculynk Inc.'s online PIN debit application, PaySecure. That system prompts consumers to enter their PIN on a virtual pad on the computer screen.

Adaptive decided to integrate a phone in the authentication process because it views browser-based PIN-debit transactions as risky, according to Ralph Bianco, the Fort Lauderdale, Fla., company's 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."

Shazam also supports the PaySecure system.

While their authentication methods differ, Acculynk and Adaptive have much in common. Adaptive also is touting low-cost interchange costs and reduced chargeback percentages.

Shazam plans to set its interchange rate somewhere between a signature-debit transaction and a PIN-debit purchase at the point of sale. "The incentive for the retailer is that there is an adjusted interchange rate that is assessed on this type of transaction," Kramer said.

Chargebacks can account for up to 20% to 25% of a merchant's fees, Bianco said. "We believe that will substantially go away," he said.

Adaptive is talking to other PIN-debit networks, merchants and banks about E-commerce Checkout. It expects to announce two more networks this month.

"We're not asking anyone to choose" between Acculynk and Adaptive, Bianco said. "We're just asking for a place at the table."

Paul Tomasofsky, president and executive director of the Secure Remote Payment Council, said Internet PIN-debit products will thrive if consumers and merchants believe them to be safe, they are easy to use and merchants find them simple to implement.

"Consumers are clearly looking for more safe and secure ways to do Internet commerce using their checking accounts to pay," said Tomasofsky, who is also the president of Two Sparrows Consulting.

It should come as no surprise that companies are taking the brick-and-mortar POS model and bringing it to the Internet environment, Tomasofsky said.

"It makes a lot of sense to try a replicate and build upon what's worked for some 40 years in the physical PIN-debit world," he said.

Bianco and Kramer agree the consumer ultimately will determine which company gains the most market share.

Adaptive's own research indicates consumers would have no issue entering a PIN through a mobile phone.

In the end, it would be up to Adaptive, Shazam and other security vendors to raise consumers' comfort levels in entering their PINs in an environment outside the traditional retail setting, Kramer said.

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