- Certegy: An Equifax Spin-Off Fills An Internet Payments Void With E-Checking

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In the mid-1990s, just as the Internet’s promise as a merchandising platform was being championed by a handful of visionaries, the most persistent stumbling block offered by naysayers was the payments process. How could web merchants offer convenient and secure payments, they wondered, without engaging in a total and expensive overhaul of the retail payments system? Indeed, some of the best known Internet payments hopefuls at the time were companies developing sophisticated digital cash networks and calling for smart cards that secured web transactions back to the consumer’s desktop.

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Today, new millennium terms like e-cash and digital wallets are stuck on the payments industry sidelines. And smart cards, though finding applications elsewhere, are no closer to seizing their Internet promise than five years ago. Does it mean that progress on web-based payments has stalled? Hardly.

An Explosive E-Payments Market
Payments processors, realizing that the web is a vast new marketplace for their services, have been flooding into that market with a wide array of payments solutions, every bit as varied—and then some—as the payments options available to consumers in retail stores. Except for cash, every payment option available in stores has also established a beachhead on the web, and some options being offered or developed for e-retailers are strictly web-based. The list of competitors that have entered the field is just as robust, and the competition between them is so intense web merchants can be confident that the product innovations they have seen so far in this market will continue, if not accelerate.

To be sure, the web-based payments business initially attracted pioneering companies that focused on electronic commerce as a specialty. But in the last couple of years, the fast-growing retail Internet payments market has attracted huge competitors, such as Certegy Check Services, formerly known as Equifax Check Solutions, which is looking to leverage in this new market the dominant positions it built in conventional retail payments years ago.

This growing list of e-payments processors has quickly produced an equally broad array of e-payments products, including credit card, PIN-based and off-line debit cards, electronic checks, and so-called peer-to-peer payment programs under which web buyers and sellers fund payment accounts managed by the third-party processor. Many of these are also offering a broad array of value-added services, which, when taken together amount to a complete e-commerce package.

Cashing In On E-Checks
Not all vendors in the e-payments market try to offer a full-service solution, however. Certegy Check Services eschews the strategy of developing a total e-payments solution, preferring instead to focus on the historic strength it developed when it was part of Equifax Inc.—database solutions for credit card and check authentication. As it surveyed the web-based retail transaction market, it saw a major opportunity that appeared to be right up its alley—electronic check processing.

With one of the oldest and largest repositories of consumer credit and check verification data, Equifax has been a key behind-the-scenes player in credit and check authorization. A year ago, it entered the web payments market with an electronic check payment product, which employs its massive risk management database to authenticate the e-check and uses the ACH to transfer payment electronically. Earlier this year, Equifax Inc. spun off its Equifax Check Solutions into a stand-alone company that took the name Certegy Check Services.

Whether the check processing service is provided by Certegy or by a third-party vendor, the Certegy database is an essential ingredient to the e-checking service that the company now aggressively markets to web merchants. “There are anywhere from 40 million to 70 million people who do not have credit cards, and in addition some cardholders are maxed out on their credit lines,” says Jan Whitfield, vice president of Internet sales for Certegy. “But millions of those people do have checking accounts, and the retailer is missing out on additional sales by not accepting all forms of payment.” Retailers are pressing for web-based check payment as well. Says Whitfield: “Most retailers selling on the web today are brick-and-mortar merchants who take checks at the store and want to extend that choice to all their sales channels.”

Adding The Missing Ingredient:
Risk Management
Actually processing an electronic check payment on the web is relatively simple: the web shopper provides her checking account number and bank routing number to the web merchant, who sends it to the processor, which in turn clears the payment through the Automated Clearing House. The problem is determining whether the customer ordering on the merchant’s web site is the same person whose name is on the checking account being used for payment. “The technology for electronic check payment was already there, but there was no risk management behind it,” says Jeff Carbiener, senior vice president and general manager of Certegy Check Services.