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Monday, March 30, 2009

Virtucard for virtual goods

The Virtucard, a new online payment method from SafPay Inc., promises no chargebacks and a low per transaction fee for merchants while offering anonymity and security to consumers. Consumers load this virtual mall card with their bank's online bill-pay provider and spend it like a gift card at participating online stores.

The micro niche

According to George Ouzts, SafPay's Chief Executive Officer, the merchant is charged a flat 3 percent per transaction fee for all Virtucard transactions. The lack of additional merchant account fees or interchange makes it economical for merchants to accept micropayments – which are used in the online gaming industry, on social networking sites and for pay-per-use services.

Ouzts said there is a new trend for secure, membership-based Web sites that charge by the minute.

High risk lowered

He said online travel services and goods-not-present merchants (ones that sell goods that are not physically shipped, such as software, music and virtual items) are examples of high-risk vendors who might be good Virtucard candidates.

The anonymity of Virtucard transactions appeals to consumers concerned about privacy and fraud, while the guarantee of funds appeals to merchants. Ouzts said that some merchants whose customers formerly paid with credit cards were adopting the Virtucard instead.

Virtual mall in reality

"On the merchant side, we didn't realize how many merchants were unhappy with either their current credit card processor or how many merchants couldn't get credit card merchant accounts in the U.S. and were forced to go offshore," Ouzts said.

He added that consumer enthusiasm for Virtucard was also surprisingly high: "[Consumers] were loading up their cards with hundreds of dollars; they were spending more than typical credit card users." He speculated that consumers were using this payment method either because they felt safer or because they felt compelled to spend funds already loaded onto the card – even though SafPay allows consumers to cash out their cards at any time.

Paul Grill, a Partner at First Annapolis Consulting who focuses on card issuing and emerging payments, said that among the many new payment offerings designed to lower transaction costs for merchants, the security and anonymity of Virtucard is a unique twist.

"The challenge, I think, with a lot of these product offerings is how to really drive the consumer uptake because they tend not to have the same level of perceived benefits to the consumer as might a traditional card-based product," Grill said. He added that, historically, products that rely heavily on security as a selling point without offering other benefits, like broad merchant acceptance and rewards options, often have a hard time catching on.

ISO angle

Grill said that although this may be a competitive concern for ISOs that focus on e-commerce, those ISOs should be "thinking about ways to act as a distribution entity or consolidator or some other business model that allows one to help these companies actually flourish and still participate in some of the transaction flow opportunity."

Though these companies won't be quick to give up that margin, using the proven and effective ISO channel is a reasonable strategy for them to pursue, Grill said.

end of article

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