Saturday, December 15, 2007

ATM Direct Has Powerful Potential

In my opinion, Pay By Touch's ATM Direct has a great deal of potential and should be a focal point of the company in it's restructuring. PIN Debit is growing rapidly in the bricks and mortar landscape and doesn't really even exist in the web payments space. If I had to choose one aspect of Pay By Touch that holds the most promise, it would be ATM Direct, which by the way, I would rename. Maybe "P.A.I.D" an acronym for PIN Authenticated Internet Debit. Mark my words, the future of PIN debit on the Internet is huge. Sure Personalized Marketing is great, but there's a great deal more profit potential for Internet PIN debit transactions...

An EFT Summit Helps Costco Weigh Options for Web-Based PIN Debit

In a development that could lend considerable momentum to efforts to bring PIN debit to the Internet, Costco Wholesale Corp. is investigating at least three technologies that would allow the retailing giant to accept PIN debit cards for payment on its Web site, according to sources familiar with the matter.

At a meeting held last week and arranged by Chase Paymentech Solutions LLC, a senior Costco official met with representatives of ATM Direct, HomeATM PLC, and Intel Corp. to discuss methods for processing PIN debit transactions online, these sources say. Irving, Texas-based ATM Direct and HomeATM, a Montreal company, market products that give consumers the ability to enter PINs on PCs. HomeATM uses an external PIN pad while ATM Direct relies on PIN entry via mouse clicks on a screen-based PIN pad. Santa Clara, Calif.-based Intel’s offering in connection with electronic payments was not immediately clear.

ATM Direct is a unit of San Francisco-based Pay By Touch, a provider of biometrically authenticated payment processing that has become embroiled in a courtroom battle between its chief executive and a major investor for control of the company. Last week, a custodian was appointed to run the company pending the outcome of the litigation (Digital Transactions News, Nov. 19). HomeATM relies at least in part on technology acquired from InstaPay Systems Inc., whose Kryptosima unit developed external PIN pads that can be hooked up to PCs via USB connections (Digital Transactions News, Sept. 7, 2004).

Also in attendance at the meeting, held Nov. 15 at Costco’s headquarters in Issaquah, Wash., were representatives of three of the five biggest electronic-funds transfer networks, according to one of the sources, who declined to identify them. A spokesperson for Chase Paymentech declined to comment. Calls from Digital Transactions News to the other known participants in the meeting were not returned by late Wednesday.

While the ultimate outcome of the meeting will likely remain unclear for some time, its purpose was to provide a basis on which Costco and its processor, Chase Paymentech, can decide on which technology to use, say the sources familiar with the matter. Moreover, Chase Paymentech, a merchant-processing behemoth owned jointly by JPMorgan Chase & Co. and First Data Corp., is trying to decide how to place its bets when it comes to PIN debit for e-commerce in the face of mounting demand from merchant clients, these sources say. “There’s likely to be more meetings [with other merchants] in the near future” like the one with Costco, says one source, who adds much of the demand for Web-based PIN debit is coming from multichannel retailers looking to cut the cost of online transactions.

A move by Costco, a top-25 Internet merchant, to take PIN debit on its site would lend considerable credibility to the idea of taking PIN debit online. This is a notion many EFT officials have historically shied away from, citing concerns about security and about a possible threat to the interchange income EFT network members earn from signature debit. PIN debit interchange rates are typically lower than those for signature debit. Because of these concerns, the EFT networks have limited PIN debit online to payments in certain biller categories regarded as safe because the billers have established relationships with consumers. These categories include utilities and insurers, though lately the networks have added more categories, such as rent payments.

Costco’s site is the 21st largest among Web retailers with $1.22 billion in annual sales, according to Internet Retailer magazine.

PIN Debit And the ACH Among the Big Gainers in Fed Payments Study

(December 10, 2007) PIN debit transactions are growing significantly faster than signature debit payments. Checks processed electronically are approaching half of all checks paid. And transactions on the automated clearing house are growing faster than any other form of payment. These are among the more surprising results of the Federal Reserve’s tri-annual payments study, released on Monday.

The study, which actually comprises three separate research projects comparing payments in 2006 and 2003, includes input from 1,400 financial institutions about payments from deposit accounts along with information from 65 of the largest payment networks and card issuers. The Fed estimates the total number of electronic payments, excluding ATM transactions, increased to 93.3 billion in 2006 from 81.4 billion in 2003, for a compound annual growth rate of 4.6%. The value of the 2006 payments is estimated at $75.8 trillion.

Checks’ market share is not only declining but doing so at an accelerating rate. The number of checks paid in 2006 was 30.6 billion compared with 37.3 billion in 2003 for a compounded annual rate of decrease of 6.4%. Back in 2000, the number of checks paid was 41.9 billion, translating into a negative 3.8% annualized growth rate in the 2000-2003 period. Checks written—checks paid plus the number of checks converted to ACH transactions—decreased at a somewhat slower annual pace in the 2003-06 period, 4.1%, to 33.1 billion in 2006 from 37.6 billion in 2003.

But the increasing electronification of check payments is an even bigger story. The Fed estimates 40% of checks paid in 2006 were converted to electronics at some point in the collection process. That reflects the impact of Check 21, officially the Check Clearing Act for the 21st Century, which took effect in late 2004 and fostered the creation of image-exchange networks for checks. “That’s a pretty significant number,” Richard Oliver, executive vice president of the Federal Reserve Bank of Atlanta and the Fed’s product manager for retail payments, tells Digital Transactions News. Oliver notes that the survey period captured only slightly more than the first two years that Check 21 options have been available. “We’ve cleared the 50% number of the deposit side at the Fed,” he says.

ACH transactions grew faster than all other payment forms, with compounded annual growth of 18.6% from 2003 to 2006. The total number of transactions hit 14.6 billion compared with 8.8 billion in 2003. The number of checks written but converted to ACH payments, or electronic checks, exploded to 2.6 billion in 2006 from just 300 million in 2003 for an annualized growth rate of 105%. Part of that growth is coming from the point of purchase, or POP, e-check code adopted by No. 1 retailer Wal-Mart Stores Inc. and other merchants, according to Oliver. He expects e-checks to get a further boost from the new back-office conversion, or BOC, code that went live in March (Digital Transactions News, Dec. 7).

Debit cards, meanwhile, continued their strong run that began back in the 1990s and, as the payment card networks also have reported, now surpass credit cards in transaction volume. The Fed says total debit card payments hit 25.3 billion in 2006 compared with 15.6 billion in 2003 for an annual growth rate of 17.5%. “The advance there has been astounding, in my mind,” says Oliver.

Surprisingly, growth in PIN debit is far outstripping that of signature-based debit, with PIN-based transactions increasing 77% in the three-year period compared with 55% for signature-based debit. This is despite heavy signature-debit marketing pushes by Visa, MasterCard, and banks. Debit card issuers promote signature debit, and in some cases discourage PIN transactions, because they earn more interchange revenue on signature- than on PIN-debit transactions.

But efforts by merchants, including Wal-Mart, to push lower-cost PIN debit appear to be effectively counteracting that promotion, according to Oliver. Merchants not only are installing more PIN-reading point-of-sale terminals, but they’re also employing the practice of “PIN-prompting” in which the terminal automatically asks the customer to enter the PIN when a debit card offering both options is swiped.

In contrast to debit’s go-go performance, credit card transaction volume hit 21.7 billion in 2006 compared with 19 billion in 2003, for an annual growth rate of only 4.6%, reflecting credit’s maturity among U.S. cardholders. Credit card charge volume, however, remains far higher: an estimated $2.1 trillion in 2006 versus $1 trillion for debit.

The study also confirmed another much-discussed trend, the decline in ATM usage. The Fed says withdrawal transactions, estimated at 5.8 billion last year, decreased at a 0.4% annual rate in the study period. The Fed estimates that electronic benefits transfer transactions grew at a 10% annual rate in the three-year period, hitting 1.1 billion transactions in 2006.