Challenged by 3D Secure, Orbiscom Touts Proxy Numbers

Despite widespread industry perceptions that 3D Secure technologies are rendering proxy payment numbers obsolete, the primary vendor of such single-use-number technology says its system remains highly attractive to card issuers looking for ways to encourage customers to spend on the Internet. “I feel very bullish about our product,” says Diane Shaib, executive vice president of marketing at Orbiscom Inc., the New York-based U.S. unit of Orbiscom Ltd., Dublin, Ireland. Orbiscom now claims 19 clients, including Discover Financial Services Inc., MBNA Corp., and Citigroup Inc. in the U.S., which combined account for about 45% of the U.S. bank card base. Adoption rates of Orbiscom's product, which the company calls Controlled Payment Number (CPN), ranges from 4.5% to 38% of all cardholders who have registered at clients' Web sites. The average is about 10%, a rate that has doubled in the past year, says Shaib. The single-use system, meanwhile, has completely wiped out online card fraud where it has been used, she adds. “There's never been any fraud on any transaction that has been CPN-enabled,” she says. With proxy or single-use account-number systems, consumers shopping online who don't want to use their credit card numbers can randomly generate a substitute number that the card issuer recognizes for authorization and settlement. Once used, the number is permanently retired. Issuers must install the proxy-number system, but merchants aren't required to do anything, since such transactions look no different from ordinary card payments. Shaib says fears of online fraud and identity theft are driving consumer and issuer interest in single-use technology. “Growth has come from the general growth of interest in Internet shopping,” she says. “And also the notoriety of ID theft. Consumer concern about losing a credit card number is probably at an all-time high.” Indeed, cardholders who use CPN spend from two to four times the industry average on the Internet, Shaib says, a factor that helps issuers “amortize the high cost of account acquisition.” But critics contend issuers are moving away from proxy numbers in favor of the 3D Secure technologies from Visa and MasterCard, Verified by Visa and SecureCode. These systems try to replicate the point-of-sale experience by prompting cardholders to enter a secret code in a pop-up window when checking out from a retailer's site. Many issuers prefer 3D Secure because it requires no software downloads by consumers, unlike single-use technology. And 3D Secure, which was invented by Visa, has the backing of the bank card companies, say some observers. “The big picture is that VbyV and SecureCode are growing and are the focus of the issuers in terms of Internet transactions,” says Naftali Bennett, chief executive of Cyota Inc., New York, which offers a proxy-number product but emphasizes its 3D Secure technology instead. Merchant interest in 3D Secure has lagged behind that of banks, but the bank card networks have encouraged adoption by shifting chargeback liability to issuers. Visa also has cut its interchange rate on VbyV transactions by 5 basis points. Still, Orbiscom's Shaib remains optimistic. She says the company will soon launch a major effort to disseminate the results issuers have achieved with CPN. “[CPN] sits at the sweet spot,” she says. “Three years ago we didn't have stats. We had a promise. It was, 'Believe me.' Now I challenge [issuers] to look at their portfolios, look at the adoption rate for 3D Secure, and tell me whether the revenue upside is what they want.” The company's three U.S. clients have upgraded their CPN systems, most recently Discover, which is rolling out its new system this summer (Digital Transactions News, July 30). Says Shaib: “They would not be doing that if it weren't working for them.”