PIN-Based Web Debit Takes Up Arms

  Over the past few years, initiatives designed to enable personal identification number-based debit cards to be used on the Internet have involved primarily the Star and NYCE electronic funds transfer networks, neither of which has gotten beyond pilots. So one vendor decided to call in the "armed forces" to help get the market moving.
  InstaPay Systems Inc.'s Kryptosima subsidiary has received the go-ahead from the private Armed Forces Financial Network to enable consumers carrying AFFN-branded cards to initiate PIN-based debit transactions on the Internet using Kryptosima's payEnkrypt gateway service. AFFN's more than 80 million debit card holders primarily are military personnel and their families, as well as military retirees.
  Hampton, Ga.-based Kryptosima last summer conducted tests with the Maitland, Fla.-based Star network, but Star never gave the nod to allow Kryptosima to proceed with a full rollout. Indeed, use of PIN pads at home to shop on the Internet would be a first in the U.S. marketplace outside of tests.
  "This is not a maybe," says Harry Hargens, president and chief executive of InstaPay and Kryptosima. "After several years of struggling up the mountain, we're going into production."
  For Web merchants, the ability to accept PIN-based debit transactions would greatly reduce the interchange they ultimately pay card issuers for Internet purchases. Moreover, PIN-debit acceptance also would add potential new customers who may not have a credit card or signature-based debit card, two of the most common payment methods used today for Web shopping.
  Acquirers pay AFFN issuers 11.5 cents to 14 cents in interchange per transaction, and the top 50% of issuers get a 2-cent rebate.
  Hargens says two merchants have agreed to distribute PIN pads to customers for their home computers. Charlottesville, Va.-based Internet Payment Solutions Inc. will implement it on its PayByCash.com Web site, and Jersey City, N.J.-based Larose.com, an online flower and gift shop, says.
  Dave Weber, AFFN president, says he gave Kryptosima permission to route transactions through the network if the company secured an acquirer to assume the risk. Baltimore-based acquirer Carrollton Bank will provide the terminal sponsorship. Scottsdale, Ariz.-based eFunds Corp. will serve as the network gateway.
  Tom Barrat, eFunds national sales director for electronic funds transfer processing, says other organizations besides Kryptosima have tried to sell networks on their own at-home terminals designed for Internet debit purchasing using an ATM card, but none came out with the simplicity Kryptosima's system has. "We're excited," Barrat says. "We hope it takes off and is wildly successful."
  Barrat believes that once other networks see growing acceptance of PIN debit on the Internet they will begin to view such transactions as another way to generate traffic through their switches. One network, Montvale, N.J.-based NYCE, rolled out its own PIN debit service for Internet purchases, SafeDebit, a couple years ago. But NYCE in January stopped funding for the project after difficulties securing issuer and merchant interest.
  However, Paul Turgeon, NYCE senior vice president, says SafeDebit is not dead. He says NYCE's majority owner, First Data Corp., is still interested in the product, which uses a CD-ROM to hold and encrypt users' PINs.
  Meanwhile, executives from other EFT networks, including Pulse, have said member institutions have not pressed them to develop technology for accommodating PIN-based debit transactions on the Internet.
  InstaPay's Hargens, though, like Barrat hopes other networks will embrace his product. "Once we're in production with one network, I'm optimistic others networks will decide to opt in," he says.
  With payEnkrypt, participating Web merchants' payment pages tie in to Kryptosima's server, which connects to users' PIN pads and prompts cardholders to enter their PINs. The payEnkrypt server then sends the information to eFunds, which directs the message to the network switch and to the issuing bank for authorization using the same messaging format used for PIN-based point-of-sale debit transactions. The authorization message then passes back through the same electronic path.
  "The consumer's payment data never pass through the merchant's Web site," Hargens says. "Most card information historically has been stolen from merchant Web sites, so we believe taking the information instead to our gateway creates something more secure."