Friday, March 7, 2008

There's No Place Like Home...ATM

Costco Wholesale Corp. is investigating two 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 arranged by Chase Paymentech Solutions LLC, a senior Costco official met with representatives of ATM Direct (which has since gone bankrupt), HomeATM 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, depending on the application, either an external PIN pad combined with a mouse clicks on a floating screen based PIN Pad. They also have the ability to transact without the external PIN Pad.

ATM Direct relied only on a PIN entry via mouse clicks although now that it's bankrupt, dismantled, and it's website gone ( , it seems irrelevant what they did or could have done.
ATM Direct WAS a unit of San Francisco-based Pay By Touch, a provider of biometrically authenticated payment processing. They have since filed for bankruptcy and must liquidate their core and non-core assets.

ATM Direct was sold at auction and is therefore no longer considered a player.

To give you an idea of the lack of viability regarding ATM Direct's platform;
according to Digital Transaction News, Pay By Touch paid $30.5 million dollars for ATM Direct, yet it fetched only $600,000 at auction. Therefore, one would have to logically assume that it's intellectual property was not very strong in the face of HomeATM's and thus it was purchased for the purpose of it's inventory, which consisted of 25+ IBM Blade Servers.

Therefore, it is my guess that it will never be heard from again, which although it probably wouldn't have mattered anyway, still bodes well for HomeATM.

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). However, in the last three years, they have vastly improved on this technology and hold the global patent for PIN based transactions in a web-browser space. This is the patent that probably resulted in ATM Direct becoming a Blade Server Discount Store.

Also in attendance at the meeting, held 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. This is just the beginning of what could be a whirlwind decade for HomeATM.

“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...make that 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. However, according to HomeATM, their transactions would be 99.9 Sigma Secure, so it seems they have overcome those concerns and are poised to challenge some of the biggest online payment players for market share.

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.

PIN debit interchange rates are significantly lower than those for signature debit. Of course, signature debit doesn't really even exist on the Internet, as it's not physically possible to provide a signature, thus the rates web retailers pay are typically even higher than signature debit.

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

Thus, according to the chart on the left, HomeATM could save Costco 100 basis points on it's Interchange Fees. That would equivocate to an annual savings of $12.2 million dollars, or $122.2 million dollars over the next whirlwind decade that HomeATM could enjoy.

Imagine that only half of the top 30 Internet Retailers, who each process $1 billion dollars per year were smart enough to save 100 basis points, reduce back office risk management costs by half (estimated to average around 4%) The sales proposition is as simple as it gets. Save More, Risk Less.

Disqus for ePayment News