Web Merchants Set High Hurdles for Alternative Payments to Clear

Online merchants are interested in alternatives to credit cards for payment, but set high hurdles for alternative payment methods to overcome, including the need for authentication, for a smooth, uninterrupted customer session, and for reasonable pricing from processors that doesn't tax merchants to develop a user base for the processors. That's according to a panel of Internet merchants and service providers who addressed alternative payments at a NACHA trade show in San Antonio this week, including representatives from Dell Inc., Amazon.com, America Online, Microsoft Corp., and RealNetworks Inc. Meanwhile, the panel, expressed some frustration at the lack of availability of PIN debit cards for Web payments. Debit payments linked to PINs are generally far less expensive than current credit and signature-debit alternatives for merchants, while also offering guaranteed funds. Banks and electronic funds transfer networks have not permitted the use of PIN-based debit online, fearing the risk of fraud should PINs be compromised. The panel, however, dismissed such concerns, arguing their payment technologies can handle PINs safely. “I don't understand why we can't do PIN debit online,” said Kevin M. Dasch, senior manager for U.S. consumer payments at Dell. “If it's the most secure way to do a transaction in the face-to-face world, it would be online as well.” Added Mary Kay Bowman, global-payments executive at Amazon: “Introducing a PIN is possibly a better alternative than other authentication methods because PINs are something people already know.” She contrasted PINs with Verified by Visa and MasterCard's similar SecureCode authentication technology, which require customers to enter a secret code at checkout. “SecureCode and VbV [are] another story,” she said. But the merchants aren't ready to jump on any alternative to credit and signature-debit transactions. Speaking to an audience of automated clearing house professionals, they insisted alternatives such as the ACH, which offers electronic-check capability, must improve its risk-management technology, particularly when it comes to authentication. But at the same time they pointed to the need to keep transactions fast and seamless, fearing abandoned shopping carts. “Once we bring on a customer we want the customer to have as uninterrupted an experience as we can [provide],” said Benjamin L. Quigley, senior marketing manager for renewal and payment marketing at AOL. “Checking and the ACH don't perform as well as cards. The validation and authentication methods are not as robust” On transaction pricing, the panel said alternative-payments processors must avoid the temptation to lean on merchants to market the new payment method while at the same time charging merchants to accept it. “If you're going to charge me to acquire customers for you, that doesn't sit well,” said Dell's Dasch. E-check, person-to-person, and other alternative payments may be priced reasonably now, some cautioned, but processors might change their pricing profile once they're established. Referring to her fellow merchants on the panel, Amazon's Bowman said: “We're all in a position where we could make somebody's business. Do we want to encourage someone who's going to bring costs to us later?”