Adaptive Payments is entering an already crowded mobile-payment acceptance market with a device that enables merchants to accept PIN-debit transactions on smartphones using a method similar to the company’s e-commerce operation.
The Shazam electronic funds transfer network will make the magnetic stripe reader available in the next two months to its nearly 1,500 community financial institutions as well as its merchant customers.
Shazam made a strategic investment in Adaptive earlier this year (
Adaptive’s entrance into the mobile-acceptance market comes at a time when networks such as Shazam are seeking ways to increase PIN-debit options in light of new rules regulating debit-interchange fees and network exclusivity, says Ralph Bianco, Adaptive’s chief operating officer.
“I think PIN-debit is going to be hotter [area] than ever,” he tells PaymentsSource.
Merchants plug the Pentagon mobile point-of-sale device into the bottom of Apple Inc.’s iPhone. The device also charges the phone and indicates whether a mobile signal is available. The reader also encrypts the card’s information when swiped using the Triple-DES protocol.
To complete a PIN-debit transaction, consumers enter their phone number in a dedicated field within the accompanying mobile application. An automated system then calls them to verify the transaction details, and they enter their card PIN using their own phone complete the transaction.
Adaptive uses what it calls a five-factor authentication process that combines cardholder information and transaction data with the PIN consumers are accustomed to using at the point of sale or at ATMs.
A hardware-security module on Adaptive’s back-end system encrypts the PIN and sends it to a payment gateway to begin the processing cycle.
Adaptive also is giving merchants the option for customers to enter their PIN using a separate pad device or the merchant’s iPhone, Bianco says.
The Pentagon device also enables merchants to accept signature-debit and credit card payments.
Adaptive eventually will release a version for Google Inc. Android-powered phones.
Adaptive and Shazam are putting an emphasis on what is called out-of-band, or dual-channel, authentication. This method theoretically keeps the PIN safer because it is separated from the payment device.
“The idea behind that is that the authentication token never appears in the same channel and at the same time as the card and personal data,” Bianco says, noting the method helps differentiate Adaptive’s offering from Square Inc.’s device, which has come under fire for what some deem as security flaws.
Also separating Adaptive from Square is the company’s willingness to work with banks and independent sales agents to brand the device as their own, Bianco says.
“That means you get to name it or use our name,” he says. “You get to decide how to process signature-debit and credit and we handle the PIN-debit processing.”
Shazam and other merchant-services providers will set the pricing for the system. Adaptive will charge a fee for each transaction. Bianco declined to reveal the amount.
The network will target merchants that need mobility, such as street vendors and farmers’ markets, says Terry Dooley, Shazam senior vice president and chief information officer.
Dooley also believes the device would work well in a restaurant setting.
“In the retail space, like restaurants, they take the card away, swipe it, and of course that’s an area where a lot of fraud occurs within the industry,” he says. “There is a lot of value to take that device to a table and have consumers perform the transactions themselves.”
Shazam does not view Adaptive’s process as cumbersome for the consumer, Dooley says.
When the network tested the device in a restaurant, it found there might be an additional 30 to 45 seconds added to the overall payment experience, Dooley notes. “And that’s on the high side,” he says.
Adaptive’s added layer of security with PIN-debit acceptance is a feature the company will have to push to help the device find some footing in the market, notes Paul Tomasofsky, president of Two Sparrows Consulting.
“I think clearly security has to be one of the first pillars of figuring out whether something is going to be a success or not,” he says.
Adaptive’s Shazam affiliation instantly gives the device more credibility, Tomasofsky adds.
“With someone like Shazam, who is protecting a PIN and is very conscious about security, they are not going to do something that will take them a step back from where they are today,” he says.
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