Acculynk Enters Acquiring Market, Gains Small-Merchant Footprint with PayLeap Deal

Online PIN debit provider Acculynk Inc. on Wednesday entered the acquiring business with its acquisition of PayLeap, a 4-year-old gateway provider and processor based in Warsaw, Ind. Terms of the deal, which has already closed, were not released.

Up to now, Acculynk has worked chiefly with big acquirers to sign up merchants for its technology, which lets consumers enter their debit card PINs on a virtual PIN pad to buy from e-commerce merchants. So far, some 3,200 online merchants have signed up to accept Acculynk, the Atlanta-based company says, the most recent being American Airlines Inc. Now, with PayLeap in hand, the company plans to form a unit called Acculynk Direct that will call on small businesses.

PayLeap serves 4,000 small merchants, about 80% of which are e-commerce sellers. It also operates affiliate and reseller programs and has its solution integrated into some 75 shopping carts.

Direct access to small online businesses “is the big reason for the deal,” says Ashish Bahl, chief executive of Acculynk. “It’s the small market we weren’t really getting to.” Bahl adds that Acculynk Direct will now be the only acquirer in the market with its own Internet PIN debit product.

At the same time, PayLeap saw more opportunity in joining forces with Acculynk than in simply representing the company. Scott Miller, chief executive and founder of PayLeap, says he originally approached Acculynk to sell its service. “I thought it would be unique to get Internet PIN debit activated on our system, but the more we spoke the more it made sense to merge the entities together,” he says.

Acculynk has a war chest it can rely on for such deals. It raised $3.5 million last month from an unnamed Fortune 500 investor. Overall, it has raised $21 million since its start in 2008.

Some experts caution that while the deal may pay off in the long run, consumer readiness to use PINs online remains a question mark. “It makes sense for Acculynk to broaden their [merchant] base, but we still have to solve for the adoption piece,” says Patty Hewitt, director of the debit advisory service at Maynard, Mass.-based Mercator Advisory Group. She points out that banks have spent decades training customers to protect their PINs, which will raise costs for merchants and banks to promote online PIN debit.

While Acculynk has connections to 11 debit networks, not all issuers within those systems have agreed to let their cards participate. Also, not all issuers have the same incentives when it comes to PIN debit. Under Federal Reserve rules that went into effect last fall, signature and PIN debit interchange is capped at the same price for issuers with $10 billion or more in assets. But pricing is still unregulated for smaller issuers, leaving them able to rake in significantly higher interchange by promoting signature debit. “The return is higher [on signature debit] if they can keep the fraud down,” Hewitt notes.

Even big issuers, she argues, might want to promote other products. “There are competing products for marketing capital,” she says. “Are they going to put a priority on online PIN debit over a prepaid card or a mobile [person-to-person] payment app?”

Still, the small online merchants PayLeap serves are looking for ways to cut costs, Miller says, and PIN debit offers the chance to reduce interchange and network fees as well as fraud and chargeback costs. The company also processes for a number of sellers of high-ticket goods such as jewelry and electronics that may respond favorably to a payment type, like PIN debit, that shifts fraud liability to the issuer. “That will be very attractive to them,” Miller says.

Bahl says Acculynk Direct will be based in Atlanta, though Miller will remain in Indiana with a “skeleton crew” to run the business. “We’ve made employment offers to everyone we want,” says Bahl. “We will do incremental hiring in Atlanta.” PayLeap’s sponsor is Wells Fargo & Co., and its primary back-end processor is First Data Corp., which will handle online PIN debit transactions generated by Acculynk Direct, Miller says.