Debit cards meet the Internet

MAITLAND, Fla. and WOODCLIFF LAKE, N.J. - Debit cards and the Internet have mixed about as well as oil and water-until now. On-line debit transactions have been left out of the e-commerce mix because they require a Personal Identification Number to initiate a transaction. E-commerce vendors and financials have not been able to get around this logistical problem, but a groundbreaking announcement from Star Systems, Inc., Maitland, Fla., and NYCE, Woodcliff Lake, N.J., will make online debit card transactions over the Net a reality for millions of debit card holders. Star and NYCE will begin offering a product known as SafeDebit to its financial institution clients. SafeDebit is a payment solution that allows consumers to use their debit cards to make secure, real-time Internet purchases. In addition to receiving the traditional plastic ATM/debit card, financials offering SafeDebit will also issue their cardholders a SafeDebit CD-Rom card. It's a 3 inch by 2 3/4 inch card disc that is small enough to slip into a wallet. Though smaller than a standard CD-Rom disc, it runs in a standard CD-Rom drive. When making a purchase over the Internet, the card holder selects a SafeDebit symbol option from the vendor's payment screen, inserts their SafeDebit CD card into their CD-Rom drive and enters a PIN for authorization. It's the equivalent of giving consumers access to a POS terminal typically found in grocery stores and gas stations where the consumer can enter their PIN on their own. The two-step process of combining the physical card and then a PIN is the norm for all on-line debit transactions, but is totally new for the Internet. Prior to this someone making a purchase over the Net could only enter a credit card number or use a debit card in an off-line mode, which makes it similar to a credit card transaction. "What this means is that the transaction is protected by the security of an encrypted CD-Rom and PIN. The fact that you have two different things, the CD-Rom and the PIN, makes it a secure vehicle," said Barbara Span, public relations vice president for Star. Span said the PIN for the CD-Rom, what Star is calling an "e-PIN", will be different from the PIN a person has for their normal ATM/debit card. One of the most obvious benefits of SafeDebit is cost. The interchange fee on a debit card is usually much lower than for a credit card, making the program attractive to merchants who want to keep a bigger percentage of their sales. As with ATM/debit card transactions, transactions using SafeDebit will be routed through an EFT network, so all of the speed and economies of scale that apply to any normal ATM transaction, apply here. One of the other key benefits is in reducing fraud. The two-step method makes it harder for a criminal to perform an online debit transaction. Even if someone was to lose the CD-Rom, Span said the CD-Rom has strong encryption that would make it extremely difficult for account information to be compromised. Bob Rose, president/CEO of the CO-OP Network said SafeDebit is an answer to providing consumers with a debit instrument they can use over the Internet. "I still think there's a long way to go, but it's pretty easy taking a disc and putting it into a computer," said Rose. Rose said the CO-OP Network has been working with NYCE and Star on SafeDebit and the product will be available to participating CO-OP Network CUs. It's unusual for Star and NYCE to collaborate on any venture, but the companies said the goal of bringing on-line debit transactions to consumers was too important. Together NYCE and Star have 5,500 member financials. Star alone serves approximately 1,243 credit unions and NYCE serves about 1,000 credit unions-all of which will be able to use SafeDebit. However, credit unions must request the service; it won't be automatically activated, said NYCE and Star officials Span said it's up to the financial to price the product. She said it's too early to tell what type of pricing structure Star and NYCE will offer financials. Rose said since SafeDebit utilizes existing EFT networks, there are no expensive hurdles for processing SafeDebit transactions. David Pace, operating officer for EFT company CU24, questioned the use of a CD as a PIN mechanism. "We're looking into the same process ourselves with our EDS switch. I would hope there's a way to do it without having to get as cumbersome as sending out CDs to all card holders," said Pace. Pace does believe that on-line debit transactions over the Web will be a growing market. "People don't want to just charge things all the time, debit is another option," said Pace. The biggest question now is how many vendors will agree to accept SafeDebit. Already, Walgreens and CVS have signed on for SafeDebit and the lower interchange fees may make it a no-brainer for most merchants. -pgentile@cutimes.com