HomeATM Aims to Bring PIN Debit, Card Present Rates to the Web

A small engineering company in Montreal has struck a deal with Universal Air Travel Plan Inc., a Washington, D.C.-based switch for some 220 airlines and travel agencies around the world, to enable air carriers to accept PIN debit and credit cards on their Web sites with card-swipe authentication. In addition, it has applied for a patent on technology it says could give online merchants card-present rates on credit card payments. Web-based merchants must pay so-called card-not-present interchange rates on credit card transactions, which are higher than the rates brick-and-mortar retailers pay. The company, HomeATM, has five online merchants using its technology, which relies on low-cost card-swipe devices linked via USB connections to users' computers. Now, with access to UATP's airline connections, the company says it's gaining momentum as Internet merchants show an increasing willingness to try alternatives to conventional credit cards. Mitchell Cobrin, HomeATM's chief operating officer, says the company expects to be processing for a dozen merchants by year's end. He projects the company's deployed base of devices, now at 5,500, will double by the end of the first quarter next year. UATP may not be the only major merchant or processor evaluating HomeATM's product and technology like it. With interchange rates rising, and with the premium on card-not-present rates making Internet transactions on cards even more expensive, merchants of all sizes are looking at alternatives, such as PIN debit. HomeATM was one of three companies Costco Wholesale Corp. and its processor, Chase Paymentech Solutions LLC, talked to last month about the possibility of handling PIN debit transactions on the warehouse retailer's Web site (Digital Transactions News, Nov. 21). Former Chicago entrepreneur Ken Mages, HomeATM's chairman and chief executive, refuses to discuss the Costco talks. HomeATM's patent application is for technology it calls PinMyCard, which allows online buyers to use a card-swipe and PIN pad device linked to their computers to authenticate themselves and choose a PIN for current and future transactions. PinMyCard redirects buyers who click on a credit or debit card choice at checkout to HomeATM's server, where they are prompted to swipe their cards. PIN debit users also enter their PINs. Using links to credit and debit card networks, HomeATM authenticates users from data captured through the devices. All data are encrypted in triple DES before flowing out of the device and into the browser. Each user then selects a PIN to be assigned to his card and can use the PIN to make future purchases. Users need not revisit the PinMyCard site unless they wanted to change their PINs. The process should be robust enough, argues Mages, to qualify transactions for card present interchange. He says his company has worked out agreements with two major processors, which he will not name, that will “accept PINs as signatures.” Still, the bank card networks would have to agree. “There's some grunt work that needs to be done,” Mages concedes. But he contends that the networks must ultimately defer to merchant demand, particularly as both Visa Inc. and MasterCard Inc. find themselves serving constituencies much broader than their traditional bank client base. “The question is whether or not they are amenable to addressing the needs of their clients and realizing their customers are going to demand this,” he says. Transaction fees vary by volume and the network needed to authorize transactions, Mages says. HomeATM absorbs costs such as network interchange and builds it into its fee structure. In some cases it charges a flat fee, but in others a percentage rate, says Mages. Merchants could save costs by encouraging PIN debit transactions, which are dramatically lower than credit card costs on higher-ticket items like airfare, and could save on credit card transactions if HomeATM succeeds in winning card-present treatment from the networks. HomeATM, which incorporated in Canada less than two years ago and has a head count of 15, relies on technology acquired in 2005 and 2006 from Kryptosima, an Atlanta-based company that had developed a system that allowed PIN entry via peripheral devices hooked up to a computer. But while Kryptosima was asking merchants to pay $40 or so for each device, Mages says HomeATM has worked that price down to $5. That price makes it a more saleable investment for merchants looking to save on acceptance costs, he says. As for user resistance to peripheral devices?a factor that has plagued similar ventures in the past?Mages says younger users, in particular those enamored of iPods and similar devices, see nothing unusual about hooking up a device to make purchases on the Web. UATP, which has already opened its network to PayPal and CheckFree, has been actively seeking alternative payments for its member airlines for the past two years (Digital Transactions News, Sept. 2, 2005). “[HomeATM] seemed to be a good option for us,” says Tom Cunningham, vice president of business development at UATP. “They have a unique proposition, with the PIN option and the security that gives.” As with any alternative payment processor, HomeATM will have to sell its service to each UATP member airline. But Cunningham says the company is likely to find a receptive audience. “Airlines are interested in cost savings, and alternative payment fees have their own economics,” he says.