PSCU launched its CardLock service two weeks ago. Credit unions that subscribe to CardLock allow their members to turn their credit and debit cards off through a simple call with their cellular phones.
The service could have a potentially strong impact in the credit union fight against card fraud because cards that remain turned off would not be as appealing to thieves, and PSCU felt confident enough of the innovation to apply for a U.S. patent for it.
But on the same day it announced the new service another firm, based in the U.K., sent messages to PSCU executives and Credit Union Times announcing that it already had a U.S. patent on giving cardholders the ability to turn their cards on and off.
London-based CardSwitch said it already holds patents on systems that allow credit and debit cardholders not only to turn their cards on or off, but also to limit the types of products and services that can be purchased with a card, the geographic areas where a card could or could not be used, whether or not a card could be used only online or never online, and even set purchase limits for a card.
Marite Ferrero, chief operating officer of CardSwitch Technology Ltd., sent an e-mail to PSCU CEO David Serlo and PSCU Chief Risk Officer Steve Ruwe, suggesting that the firm already holds a patent on the technology that PSCU has started offering its credit unions under the name of CardLock.
"I would like to point out to you that I am Maria T. Laage, the inventor of this system that enables cardholders (and/or banks) to turn on or turn off their debit and credit cards," Ferrero wrote. "This patent application was filed in February 2001 with worldwide PCTs. United States Patent and Trademark Organization awarded the patent for this application in August 2005.
"VISA applied for the same claims in March, 2002 (13 months after mine). VISA actually referred to my patent application, since mine is a published prior art. VISA was not awarded the patent for their application since mine got there first."
An examination of the CardSwitch Web site (http://www.cardswitchtechnology.com) says its product "enables cardholders to define their own user limits and prohibitions," which is largely what Visa is seeking to do in a product it is testing in Europe.
CardLock, by contrast, only allows cardholders to turn their cards on and off, but CardSwitch maintains that it already holds the patent on this basic feature.
In response, an executive with PSCU Financial Services said the CUSO will continue with its plans to offer its CardLock service to member credit unions despite the CardSwitch claims.
Ruwe, the chief risk officer for PSCU, said the CUSO had conducted due diligence on the patent and that an outside law firm specializing in patents had not raised any concerns.
He said the patent question will eventually be resolved and CardSwitch has sent a copy of its patent to PSCU, saying that the CUSO will now have to include it in its own patent application as an example of "prior art" that the U.S. Patent and Trademark Office will have to take into account when evaluating PSCU's CardLock application.
No matter how the patent dispute pans out, the matter has thrown a spotlight on a new source of card security software for credit unions.
CardSwitch CEO Thomas Nash acknowledged that the U.K. firm has not marketed its services widely in the U.S. and has opted to work first with larger institutions like national banks. But he also said the firm is becoming more aware of the opportunities credit unions offered.
"We like credit unions as potential customers," Nash said. "Their card bases are not extremely large, as a rule, and they have a high degree of contact and customer service for their cardholders."
Nash described the firm's product first in terms of what it is not. It is not a device for point-of-sale machines. It is not a product that requires cards to have smart chips in them.
"We are a software-based solution that offers card issuers and holders a very high degree of flexibility in their card security," Nash said.
The firms' solutions come in several different parameters, including those that the individual cardholder can establish and others that a credit union could put in place for its whole card base.
The products are also scalable, allowing a credit union interested in the service to start small, offing it first to its most active cardholders and then gradually expanding it to all.
The types of blocking that CardSwitch offers includes almost anything a cardholder could want, Nash said. A parent, for example, might want to limit a child's card use not to include gambling on the Internet or brick-and-mortar liquor stores; or cardholders who want to limit spending could set a monthly limit on how much money they wanted to authorize for restaurant purchases or purchases in clothing stores. Cardholders can even limit their authorized transactions not only to within the U.S. but even to within their state or metropolitan area.
"What we offer cardholders is a way to really control their card use in a very granular way and, through that, also protect themselves from fraud," Nash said.