On Monday, I posted the press release regarding ATM Direct, a division of Pay By Touch, partnering with e-commerce company 2Checkout.com to form the internet’s first software-only PIN-debit payment service.
Today, I'll provide more detail as to why this particular watershed event is a major milestone for Pay By Touch in its quest to "change the way the world pays".
Prior to ATM Direct, Internet PIN debit was simply and unequivocally, not even an option for Internet Retailers. This "missing link" to Internet retailing costs "individual" web merchants hundreds of thousands, even millions of dollars per year in excess processing fees.
Pay By Touch is now in a unique position to change the way the World and the World Wide Web transacts.
The reason why an Internet PIN debit option has not existed prior to now is simple. The physical card is not present at the physical location whilst making web purchases. The result is that Visa and MasterCard can charge the Internet Retailers a higher "card not present" rate. PIN Debit results in the transaction becoming more secure because the user must enter their Personal Identification Number" (PIN) and therefore the cost of the transaction is significantly lower.
This product from Pay By Touch becomes a milestone event, because Internet Retailers, even those that boast billion dollar annual sales volume, pay 25% to 50% more in transaction fees than they would with PIN Debit fees. The timing is right because, according to a recent report by Jupiter Research, online debit card use will surpass online credit card use in 2007. Debit transactions surpassed credit transaction last year at "brick and mortar" locations.
If you've been following this blog you may remember that ATM Direct was named one of the Top 5 Financial Innovations by Bank Technology News. It is certainly a paradigm shift in the payments arena.
ATM Direct bills itself as a secure and inexpensive alternative to credit and signature-debit acceptance online. Without discussing pricing, ATM Direct’s fees are less than half what merchants pay for bank card transactions.
PIN debit at the physical point of sale is generally priced by EFT (Electronic Funds Transfer) networks at rates below signature debit.
This results in significant savings for large online retailers.
From a Previous Post: Monday, February 13, 2006 A Closer Look at PBT's ATM Direct
"Credit cards were not designed for use on the Internet. With no card present, and no signature available, the risk is too high and fraud is too prevalent Lower cost debit cards already outnumber credit card transactions on the Internet, however, they are processed at "credit card transaction rates".
RESULT: INTERNET RETAILERS ACCEPT LOWER COST DEBIT CARDS BUT PAY THE MUCH HIGHER CREDIT CARD (NOT PRESENT) INTERCHANGE RATE. PIN DEBIT IS 15 TIMES MORE SECURE THAN SIGNATURE DEBIT.
Rhetorical Question of the Day:
Why would any Internet Retailer PAY DOUBLE the fees to INCREASE RISK?
PIN Debit from Pay by Touch will CUT PROCESSING FEES IN HALF with a payment that is 15 times more secure ...and open their store to more customers.
PIN-debit is the most widely used card payment method in the world and is often the only card payment alternative in countries where credit card and "signature" debit cards are not widely used or not available.
Getting back to where I left off, anywhere from 7% to 15% of the signature-debit transactions CURRENTLY accepted by merchants ATM Direct has targeted could be converted to PIN debit, That's without advertising to consumers that they could use their safer, more secure PIN Debit card. I would estimate, according to current industry trends, that the number would jump to 40-50%.
As with PIN debit at the point of sale, transactions are authenticated by consumer-entered PINs and funds are guaranteed to merchants. “We’re the only provider of online PIN debit,” Ziegler says. “And as part of our software, we give the consumer the security of an authentication framework to protect them when they’re online.”
The ATM (Authenticated Transaction Monopoly?) Direct system, is the first and only Internet PIN Debit payment system that allows a consumer to use their check card or even an ATM card to make purchases on the Web.
Just think of the ramifications when Pay By Touch incorporates a second authentication (biometric signature) to the equation. The result would be the safest and most secure transaction one could possibly use to make web purchases. The actual card, the actual PIN and the Actual Person. No matter that the card is not present when multi-layerd authenticationally speaking, the person is. Triple authentication is something they HAVE (the card), KNOW (PIN) & ARE.(biometric)
An argument can be made for an even lower Interchange rate than currently exists for just PIN Debit.
According to Robert Zieglar, President of ATM Direct, the company is also processing so-called PIN-less debit transactions, which are bill payments consumers make online with PIN-debit account numbers but without PINs, for these networks. “When they’re ready, it makes it easy for them to move [into PIN-based online payment],” Ziegler says.
Pay By Touch signed its second Internet Retailer merchant this week and expects 18 more by the end of the year, including two more this quarter.
“I feel good about the conversations we’re having now with top online merchants,” says Robert Ziegler, general manager at Irving, Texas-based ATM Direct. “We’re right on track.” These “top” merchants, Ziegler says, are in the upper levels of Web retailers in terms of sales.
Editiors Note: Why wouldn't billion dollar annual sales web merchants like Amazon or JC Penney use PIN Debit if they could save millions of dollars annually in transaction fees? The short answer is that they will...eventually. Here's an educated guess...the fact that JC Penney is already a partner with Pay By Touch due to the SH Solutions acquisition, combined with the fact that JC Penney is also, like PBT, a Saatchi & Saatchi "lovemark", provides a common denominator that suggests that JC Penney just may be ATM Direct's first billion dollar Internet merchant. Once you get one, it snowballs. The competition doesn't like to see their competitor saving millions per year in transaction fees without wanting to level the playing field by jumping on board as well...ATM Direct also expects soon to sign an agreement with a second, unnamed electronic funds transfer network to enable its technology.
The ACCEL/Exchange network, based in Bellevue, Wash., has been testing the service for about a year, but Ziegler says ATM Direct is now a commercial processor on the network, which is owned by Milwaukee-based Fiserv Inc. And, the company plans to introduce a mobile version of its technology “late this year,” Ziegler says.
ATM Direct’s plans could be furthered by getting more EFT networks to enable its technology. ACCEL/Exchange, whose 80 million cards account for about one-third of those in circulation, will bring the last of its 3,500 member banks live on the service by the end of the quarter, Ziegler says.
ATM Direct’s patent-pending system works by downloading digitally unique code to the consumer's desktop, setting up a process of multifactor authentication in which the company can authenticate the consumer by recognizing the code and by means of technology such as geo-location. The company also sweeps the consumer’s PC for keyloggers and other trojans.
When the consumer is ready to buy and ATM Direct is satisfied the PC is secure, the system presents on the screen a keypad for PIN entry.
The pad is called a floating PIN pad because a different numerical configuration is presented each time. This process disables the computer keyboard, allowing entry only by mouse click. (eliminates keylogging)
Once PIN entry is complete, ATM Direct returns a signed token to the merchant, asking if the merchant wants to go forward with authorization.
If so, it creates a transaction message, including a PIN block with PINs encrypted at two-key triple DES, to go to the relevant EFT network for authorization and settlement at the issuing bank. In this sense, it operates as if it were another processor hooked into the EFT network’s switch.
Here are some key findings from a recent report from Jupiter Research...
Online payment shifting from credit to debit, Jupiter report finds
As in the offline world, consumers are shifting from credit to debit payment online, with debit transaction volume expected to surpass credit transactions online by 2007. That has important implications for online merchants and card issuers, according to a new report from Jupiter Research, U.S. Online payments Forecast, 2007-2010
A signature is required to authorize a debit transaction, an option that cannot exist online.
PIN debit transactions, another means of user authentication aren't typically used online due to security concerns, and security concerns also have so far limited the growth of PIN-less debit transactions.
To reduce the risk of online debit transactions while accommodating consumers` desire for online debit transactions, Kountz also encourages merchants and card issuers to start exploring investing in platforms for Internet PIN debit.