A new payment-authentication company has developed technology that uses any phone to help verify Internet PIN-debit transactions conducted at participating merchant websites.
Adaptive Payments has introduced what it calls a five-factor authentication process that uses cardholder information and transaction data combined with the PIN consumers are accustomed to using at the point of sale or ATM. The technology also validates a consumer’s Internet protocol address and phone used in the transaction.
The Shazam electronic funds network will be the first to support Ft. Lauderdale, Fla.-based Adaptive’s Internet PIN-debit product, called E-commerce Checkout. Shazam will mandate its partner financial institutions and their merchant processors to accept these transactions regardless of the availability to cardholders, according to Dan Kramer, Shazam senior vice president of marketing and merchant services.
No participating merchants have been announced, but Kramer expects about 80% of Des Moines, Iowa-based Shazam’s 1,500 financial institutions to make their cards eligible for the service.
Echoing what other PIN-debit networks have said about capturing e-commerce revenue, Shazam believes Internet PIN-debit products will help the network secure transactions otherwise lost to the likes of PayPal Inc. and other alternative payment methods, Kramer says.
The PIN-debit brands “have not been the beneficiaries of online growth,” he adds.
Merchants integrate the E-commerce Checkout system into their checkout software. To complete an E-commerce Checkout transaction, consumers enter their phone number in a dedicated field on a retailer’s checkout page. They then will receive a phone call from an automated system to verify transaction details, and they enter their PIN using the phone to complete the transaction.
A hardware-security module on Adaptive’s back-end system encrypts the PIN, which is then sent to a payment gateway to begin the processing cycle.
Adaptive also will use the same technology for bill-payment and funds-transfer services that have yet to be announced.
The process differs from Acculynk Inc.’s Internet PIN-debit product, PaySecure. That system prompts consumers to enter their PIN on a virtual pad on the computer screen. The PIN pad scrambles the numbers as a safety precaution each time the consumer enters a digit.
Adaptive decided to integrate a phone in the authentication process because it views Internet browser-based PIN-debit transactions as risky, according to Ralph Bianco, the company’s chief operating officer.
“The question really is, how safe is the Internet and the entry of PINs?” Bianco says. “We know that we can hack any browser session using readily available tools.”
Acculynk repeatedly has stated PaySecure is safe. Shazam also supports PaySecure.
While their authentication methods differ, Acculynk and Adaptive have much in common. Adaptive also is touting cheaper interchange costs and reduced charge-back percentages.
Shazam will set the 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 says.
Charge-backs often account for 20% to 25% of a merchant’s fees, Bianco claims. “We believe that will substantially go away,” he says.
Like Acculynk, Adaptive is speaking with other PIN-debit networks, merchants and financial institutions about E-commerce Checkout. The company expects to announce two more networks by the end of October.
“We’re not asking anyone to choose [between Acculynk and Adaptive],” Bianco says. “We’re just asking for a place at the table.”
Paul Tomasofsky, president and executive director of the Secure Remote Payment Council, believes 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,” says Tomasofsky, who also is 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, he add.
“It makes sense a lot of sense to try a replicate and build upon what’s worked for some 40 years in the physical PIN-debit world,” Tomasofsky says.
Bianco and Kramer agree the consumer ultimately will determine which company gains the most market share.
Adaptive’s own internal 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 others to raise consumers’ comfort levels in entering their PIN in an environment outside the traditional brick-and-mortar setting, Kramer says.
