Making Debit Safer

L et’s think about the Internet payments arena today. We have Web merchants, customers, credit card associations, and banks. Merchants are concerned about cardholder fraud and merchant liability. Consumers are also worried about theft and merchant fraud. Some are also wary of downloading or purchasing software or hardware aimed at reducing fraud. Financial institutions are happy as long as they get their money. Finally, as we discussed in the previous article, the credit card associations are happy because Internet purchases are conducted as off-line transactions (credit and debit), which means increased revenues, much higher than if those transactions were conducted as on-line transactions.

Well, thanks to a product called SafeDebit, all that could change.

SafeDebit is a new payment product from EFT network NYCE. It is a card that uses a computer’s CD-Rom drive to initiate secure debit transactions from a consumer’s PC without any new hardware. That’s right—no smart card readers, added encryption, special wallets, or unique Internet currency are needed—just a SafeDebit card, issued from the consumer’s financial institution, and a PC.

Why Reinvent the Wheel?

If you think it’s confusing, it’s not. It’s basically an ATM transaction. If you or your merchants can use an ATM, you can do this.

SafeDebit is modeled on the existing ATM/debit card design. Participating financial institutions will issue their customers a SafeDebit CD-ROM “card” in the shape of an ATM/debit card, as well as a personal identification number.

The consumer visits a Web store, selects their purchases, inserts their SafeDebit™ card into the CD-ROM drive of their PC, enters their e-PIN™ and that’s it. The consumer doesn’t even need to enter an address or account number. Why not? Because SafeDebit uses the ATM system already in place to make secure, real-time Internet purchases.

As with ATM cards, the SafeDebit transaction is routed through the designated online EFT network, including NYCE and STAR. This two-step process, entry of a card and PIN, provides consumers with a level of security currently unavailable for Internet purchases.

Security

Since the SafeDebit card functions as an ATM card, the card contains the consumer’s banking information and only the cardholder knows the PIN. When the cardholder purchases items online with the SafeDebit card, it is different from other methods of Internet payment in that the card is present and the cardholder is verifying his identity with a PIN. The “physical presentation” of the card and the “authorized use” of the PIN provide increased security over an online credit card transaction.

We’ve Built It—Will They Come?

Will consumers use it? Studies have shown that what consumers fear most about shopping online is that their credit card data will be stolen. According to an August 1999 study by Jupiter Communications, two-thirds of online shoppers worry about the security of sites they visit. Then we have to add in the number of consumers who don’t buy online at all because of the possibility of fraud. Add to that the number of consumers who don’t have credit cards and we’ve got a pretty significant number of consumers whose security needs are not being met. With a SafeDebit card, all data is highly encrypted and if the card is lost or stolen, it cannot be used without its e-PIN.

As to the question of whether consumers will embrace SafeDebit, we need only look at the explosive growth of debit to get our answer. NYCE’s POS transaction volume has been growing at an annualized rate of approximately 40 percent for the last three years. SafeDebit uses a system (ATM) which shoppers are already familiar with and frequently use. It does not require any hardware or software, and it is portable—just as an ATM and debit card are. Additionally, SafeDebit purchases do not require the customer to fill out an online form.

Merchant Benefits

As with most items in the retail world, if customers demand it, merchants will supply it. But, even if customers are not receptive to SafeDebit, it may still be the way to go for online merchants. First, an ATM transaction is much cheaper for the merchant to process than an off-line credit card transaction. That translates into thousands of dollars in savings to each merchant. In addition to reducing processing fees, SafeDebit also reduces fraud.

When a customer enters a card number online, there is no way for the merchant to be certain that the person using the card is the person authorized to use the card. With SafeDebit, the combination of the card and the PIN can reduce charge backs, build customer trust, and probably increase transaction volume. And, it does not require digital certificates.

Finally, with SafeDebit, some of the liability is taken off the merchant. The data goes directly to the financial institution so the merchant doesn’t have to worry about securing card numbers because he doesn’t have them. In previous issues, we’ve said how important it is that merchants not store card data on their Web sites; they are targets for theft and fraud. With SafeDebit that risk is eliminated because the merchant does not have the card data. The card data is stored at the bank, as it has always been.

Bank Benefits

Financial institutions that choose to issue SafeDebit for Internet purchases benefit from adding a new consumer payment mechanism. Participating institutions also receive an entrée into e-commerce without significant investments in start-up costs. Finally, the FI’s brand is featured on-screen with each purchase, increasing the institution’s brand-exposure.

When Can I Get It?

SafeDebit will be available through participating financial institutions, retailers, and NYCE by the second quarter of 2000. In March, Star Systems, Inc., joined NYCE in offering SafeDebit to 3,400 STAR member financial institutions, representing 80 million ATM/debit cardholders. (The STAR Network processes more than 2 billion transactions a year, via nearly 520,000 participating ATMs and merchant locations.) Some NYCE Network participants who are involved in the product launch include CVS, Walgreens, and Michigan National Bank.

What Does it Mean to ISOs and Merchant Acquirers?

What does this mean to ISOs and merchant acquirers? Well, it could mean increased sales, happier customers, and more revenue. NYCE wants ISOs and acquirers to represent the SafeDebit product to click and order merchants. For more information about ISO opportunities, contact SafeDebit Sales at (201) 505-5405 or e-mail MaryAnn Keenan@Nyce.net.

NYCE is one of the largest electronic payments companies in the U.S. The NYCE Network provides financial institutions and retailers with shared network services for ATMs, on-line debit, and EBT transfer transactions. In addition, NYCE provides financial institutions with EFT processing services that support ATM deployment, debit card issuance, and home banking/bill payment solutions. For more information about SafeDebit, visit NYCE’s Web site at www.nyce.net.

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