Star To Test PIN-less Debit for Online Micropayments

With the aim of expanding the debit card's reach into the booming world of Web-based micropayments, the Star electronic funds transfer network plans to start testing PIN-less online debit payments within a few weeks. The test will run about four months and involves Solana Corp., which will act as an aggregator of $25-and-under transactions generated by the online merchants. Through the Star service, consumers using personal or laptop computers will be able to buy digital content such as ring tones for their cell phones or subscriptions to digital content delivered on a recurring basis. While content can be delivered to a computer or mobile device such as a cell phone, transactions must be initiated from a computer. Star hopes to add transaction-initiation capabilities through cell phones at a later date, says Nancy B. Loomis, Star's director of new product development and management. Through Solana, participating merchants will be required to register and authenticate consumers for the payments and bear the risk in disputed transactions. Although consumers will not have to enter their PINs, the key security feature of PIN-debit cards, “we see these transactions as fairly low risk,” Loomis said Wednesday in announcing the pilot at the Payments 2007 conference in Chicago sponsored by NACHA?The Electronic Payments Association. The reasons, she said, include the low ticket value and the fact that transactions typically will clear faster through Star's debit network than through the automated clearing house, the rail on which many micropayments ride today, hence avoiding some returns. Also, the repeat nature of many digital-content sales enables merchants to quickly cut off service if a customer goes bad. While more costly than the ACH, PIN-debit transactions usually cost merchants considerably less to accept than credit card or signature-based debit card transactions. Star is applying its recurring bill-payment rates in the pilot, which cap interchange at 35 cents. Star, however, might do some tinkering later on. “We're still working with what that pricing model will be,” Loomis tells Digital Transactions News. Merchants will be able to aggregate transactions, thereby reducing their per-transaction acceptance costs. All merchants using the Star service must be sponsored into the network by a member financial institution. While Solana is Star's first aggregator, Star hopes to add more acquirers and resellers into the service. Through the test, Star hopes to get feedback about the prospects for its financial-institution members in the fast-growing field of online micropayments. Worldwide sales of digital content amounted to about $30 billion last year, with margins ranging from 35% to 80%, according to Maria Arminio, president of Redondo Beach, Calif.-based Avenue B Consulting Inc., which is working with Solana. “There is a huge market in digital content,” she says. In the U.S., however, banks often sit on the sidelines of this new market, particularly when mobile devices are involved. The digital-content transaction typically involves only telecommunications carriers and content providers. But despite the high margins, the current system has some significant flaws that could be addressed by financial institutions, according to Arminio. They include very limited purchase detail for consumers and extended billing periods that essentially leave the telcos holding receivables for weeks.