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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.
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.
It is in providing
that missing ingredient that Certegy pins its hopes on becoming a major
player in web-based payments. When a web merchant uses the Certegy e-checking
service, the web shopper must fill out basic identification information
(name, address and driver’s license number), which is instantly matched
against the Certegy database on that consumer. The shopper then receives
a series of multiple-choice questions from the Certegy database that relate
to details about the customers mortgage, car, credit card or even student
loan history. The responses are then verified by matching them against
the Certegy database. If there’s a match, the check is approved for
payment, and the web shopper is sent via e-mail a user name and password
that is used to verify all future e-check payments by that shopper on
that site.
The real beauty about
the service, however, is that Certegy guarantees payment to the merchant
once the consumer has cleared the authorization hurdle, a guarantee that
eliminates the fraud risk merchants must accept with credit card payment.
While consumers have 60 days to stop or reverse payment on an ACH transaction,
the process is not as easy or as routine as charging back a credit card
transaction, which means that the paid order is far more likely to stick
on the books. Since rolling out its e-checking product a year ago, Certegy
has signed up 50 retailers for the service, and third-party processors
have used it for still other merchants. Already, says Certegy’s Whitfield,
checking comprises 5% of all retail payments on the web, and she believe
that number will eventually go to 15% as momentum for the service builds.
That estimate may
be low, given the response Certegy has lately been getting for its new
e-checking services. “In just the last few months, we are hearing
from merchants we talked to about the product a year ago,” says Certegy’s
Whitfield. “They’re saying, ‘We’re ready for it now.
We need more sales and profit, and we need to expand our payment options
on the web.’”
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