The Latest Try at Online Debit Counts on Merchants

A technology firm is rolling out an Internet-based debit-card shopping program that relies on merchants to foot the cost of card readers. The program developed by Atlanta-based Kryptosima, a subsidiary of InstaPay Systems, will start with the Armed Forces Financial Network (AFFN) electronic funds transfer network and several large online merchants. Harry W. Hargens, chief executive of Kryptosima, will not identify the retailers, but one Web site advertising the service is paybycash.com. _x000D_
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One of the biggest obstacles debit cards face as an online transaction device is that consumers must have card-swipe devices with pads for personal identification numbers hooked up to their home computers. The Kryptosima program addresses that problem, Hargens says, by having the expense of card readers borne by the retailers, who have the most to gain. “We’ve developed a business model that makes sense for retailers that have high tickets and repeat customers,” he says. He notes the card readers cost the merchants about $40 per customer, including shipping and other related costs. But he says many merchants can make up that cost by the lower interchange they pay on debit transactions over credit. For example, on a $500 ticket, airlines would pay nearly $10 in credit card discount fees. With the Kryptosima program, retailers will pay an average of about 60 cents per transaction. That cost includes the debit card interchange paid to the card issuer, which typically ranges from about 25 cents to 50 cents per transaction, and a fee for Kryptosima. _x000D_
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While AFFN, which has its logo on 80 million cards in the U.S., is the first EFT network to work with Kryptosima, Hargens says he is working with eFunds, a large processor of debit transactions with existing connections to major EFT networks, to link Kryptosima to those networks. Hargens has served on committees for previous online debit pilots with the NYCE and Star EFT networks. While Hargens says the technology of those programs proved out, it relied on the banks that own the networks and issue the cards to get the programs moving. Instead, he says, the real impetus will come from the retailers who need the cost reductions._x000D_