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September 29, 2002

Don Park: A market-based credit card system

Don Park discusses an idea he's had for a new, market-based credit card system where financial institutions would bid for each transaction or, more likely, each cardholder.
At the market, financial institutions bid for the transaction by matching the transaction's risk profile (sum of cardholder, card issuer, and merchant risk profile) with the institution's target risk profile. Some transactions are not live, meaning that they are old transactions returned to the market because transaction risk profile no longer meets original transaction owner's risk profile requirements (i.e. cardholder lost his job one month after he purchased a car). With today's technology, building multi-faceted risk profile in real time is not likely to be scalable. More realistic implementation will deal with cardholders instead of transactions; that is financial institutions bids and asks for the right to handle a cardholder's transactions.
A single institution system that's somewhat similar to Don's idea is Bill Me Later. Obviously, a single institution does not a market make -- but the idea of looking at each transaction in real-time and deciding whether to advance credit to the consumer is similar to the risk management approach that motivates Don's proposal. With Bill Me Later, in addition to the normal checkout information, the consumer provides her birth date as well -- which is used in conjunction with the address information provided to access online credit information to allow Bill Me Later to make a credit decision on the transaction. An FAQ on Bill Me Later focuses on the consumer questions about the system. Because there's no credit card information exchanged as part of the transaction, one of the benefits claimed is better security for both consumers and merchants -- the consumer's credit card information can't be stolen because it doesn't exist. Paymentech has a brochure on the Bill Me Later system which is focused on the benefits to merchants from adopting the system. In addition to enabling consumers without credit cards to purchase online, merchants also benefit from lower costs as Bill Me Later's merchant discount fee is lower than that of traditional credit cards. Bill Me Later is a product of I4 Commerce. Led by CEO Gary Marino, I4 Commerce has First Data Corporation and Paymentech as investors/partners along with Crosspoint Venture Capital. An August news report said that 20 major online retailers will begin rolling out the Bill Me Later payment option in the fourth quarter of this year. Bill Me Later is the first serious threat to the near monopoly that Visa and MasterCard (and their credit card issuing bank members) have had with respect to online purchases. Each transaction that moves down the Bill Me Later path -- and not the bankcard path -- results in no fees being paid to the card associations and, obviously, the loss of the credit relationship with the consumer -- which is the primary source of most of the revenue and earnings of credit card issuers. Of course, online purchases today represent only a few percent of consumer purchases so the immediate threat is small. On the other hand, most of the online purchase activity is concentrated into a relative handful of merchants -- so by signing up the top online merchants Bill Me Later can rapidly enter the market.

September 26, 2002 The great credit card bazaar

Beth Cox reports on the Internet's black market for stolen credit card numbers.

September 25, 2002

Arcot: Identrus certifies Arcot's software smart card alternative

Arcot announced yesterday that Identrus has certified Arcot's ArcotID software smart card for secure authentication and digital signing.
The Arcot approach relies on the ArcotID software smart card to strongly authenticate users and digitally sign transactions, performing all the functions of a traditional, physical smart card but in a software format. Using Arcot‚s patented camouflage approach to securing a private key, the Arcot ID securely protects a user‚s credential in a tamper-proof software container, while providing the end user the maximum flexibility and convenience by virtue of its portability and roaming capability.

September 24, 2002

Don Park: MasterCard's SecureCode

Don Park weighs in on his weblog re: MasterCard's announcement of SecureCode.

Ray Ozzie: Software Platform Economics

Ray Ozzie writes about how software platforms evolve -- or don't (largely dependent upon the how committed the investors are -- coupled with flawless execution, of course!).
Platforms require an "invest until it hurts, and continue doing so" state of mind, until such time as the platform reaches practical ubiquity. Investment creates a significant barrier to entry, and every dollar invested is a dollar leveraged many times over by the ecosystem and, if properly managed, by self.
Lots of parallels to service platforms also. Most payment-related businesses, for example, involve the same chicken and egg issues with the potential for exponential adoption once critical mass is achieved. PayPal is the most recent, successful example. As I recall, PayPal spent roughly $200 MM on customer acquisition through their bounty signup program.

September 23, 2002

MasterCard announces SecureCode

MasterCard has announced Securecode™, a new global e-commerce security solution.
To use MasterCard SecureCode, consumers will select their own private SecureCode via the Internet or phone, as directed by their card issuer. The code is managed by the card issuer and is never shared with any merchant. Much like the familiar authentication process required for use of a bank ATM, MasterCard SecureCode requires cardholders to enter their special code in a pop-up window or box on their PC before their online transaction can be completed. With this extra step, consumers can be confident that their account is protected, and card issuers and merchants gain greater assurance about the identity of the person completing the transaction.
MasterCard says that online merchants will benefit from consumers using SecureCode:
Online merchants that support MasterCard SecureCode will benefit from a MasterCard rules change that shifts liability away from the merchant for chargebacks due to cardholder non-authorization („I didn't do it‰) when SecureCode has been utilized. Chargebacks of this nature currently represent as much as 84% of all electronic commerce chargebacks. Merchants may also benefit from an increase in legitimate transactions for existing and new markets, including cross-border transactions ˜ thereby opening up the global marketplace and increasing revenues.

September 19, 2002

MasterCard International and Xign announce eB2B payment solution

This morning MasterCard International and Xign announced "the introduction of an electronic payment and information management service that is expected to dramatically simplify procurement processes and contribute to an organization's bottom line."
The solution, part of MasterCard's global eB2B strategy, will provide organizations with streamlined financial supply chain benefits, including increased management controls, buyer-approved electronic payments, enhanced data capture, and data reconciliation. In addition, the new payment platform will support a varied choice of settlement options including the MasterCard Corporate Purchasing Card®, MasterCard Remote Payment and Presentment Service˙(MasterCard RPPS˙), and the Automated Clearinghouse (ACH).

Visa International develops global payment specification for contactless smart cards

Visa International has developed a new global payment specification that removes the need to physically insert a smart card into a reader. The new specification, designed to work side-by-side with conventional chip and magnetic stripe technologies, will support a faster and more convenient way to pay and be paid, particularly in environments where access to traditional, card-based payment methods has been limited. Based on an international standard, ISO 14443, the new specification uses a chip embedded in a plastic card or an electronic device, such as a mobile phone. The card, mobile phone or other device is then held in front of a terminal and a wireless interface transits the payment information.

Visa International sues Reserve Bank of Australia

In an attempt to overthrow recently enacted regulatory rules, Visa International has filed suit against the Reserve Bank of Australia, the central bank of Australia. READ MORE »

September 17, 2002

CNET: CIBC outsources to HP

Congratulations to Hewlett-Packard who has been awarded a seven year I/T outsourcing contract with Canadian Imperial Bank of Commerce.
"This is one of the largest outsourcing deals in terms of revenue that's been signed this year by any services company," said Ann Livermore, executive vice president for HP Services. It's also by far the biggest services agreement signed by HP since its merger with Compaq Computer last May, HP executives said.

September 16, 2002

MSNBC: Debit cards overtake credit cards

MSNBC follows up on an earlier Visa USA press release that reports on a transaction basis (as opposed to a dollar value basis) Visa debit cards have overtaken Visa credit cards.
During the first six months months of the year, there were 3.04 billion Visa debit card transactions compared to 2.96 billion credit card transactions, credit card association Visa said Monday.

September 13, 2002

360Commerce: Java, Linux at the point of sale (POS)

Where is innovation happening at the retail point of sale? If you were deploying thousands of POS locations, what platform and POS software would you select? 360Commerce has POS applications written in Java -- and they run on your choice of platforms including Linux. Apple is using 360Commerce on Mac's in its Apple Stores. Others are using 360Commerce on Linux in their stores. Makes sense, doesn't it? Ultra low platform cost, commodity hardware, cheap to deploy by the hundreds (or thousands), and rich functionality. Why bother with Microsoft and Windows? Might airline checkin/gate terminals be next up for Linux deployments? How about major call centers? How about bank branches and those platform systems? Why spend the money to deploy Windows in those environments when Linux running on commodity hardware more than meets the requirements?

Element: Secure Payment Award

Element, an epayments company based in Belgium, is holding its Secure Payment Awards later this month.

Concord EFS: Bond Isaacson joins

Concord EFS has announced that Bond Isaacson has joined the company as an executive vice president.
Isaacson will be responsible for designing innovative payments products for the nation‚s largest financial institutions, associations, and retailers. His focus will be on creating new revenue opportunities for clients by applying Concord connectivity and technology to untapped payment categories, such as small value and recurring payments.

September 11, 2002

Los Angeles Times: PayPal sued by First USA Bank over patent infringement

David Coulker writes that PayPal has been sued by First USA Bank, a subsidiary of Bank One, for patent infringement.

FDIC: Progress in the financial war on terrorism

On the anniversay of September 11th, the FDIC updates progress on the financial war on terrorism.

September 09, 2002

Guardian: Phone banking takes on new meaning

An article about using your ATM card at an ATM to add additional minutes to your cell phone's pre-paid stored value account.

SkyNews: UK banking transformed by the Internet

A brief article on new research being presented today by Professor Feng Li of Newcastle University at a conference in London.

September 08, 2002 900Pay - No credit card, no problem

An article about 900Pay, a new service being used by several online casinos that funds from 900 numbers.

September 06, 2002

Amazon: Deal wifh Office Depot

Office Depot and have announced an e-commerce strategic alliance with today's launch of the Office Products store at ( Office Depot will offer more than 50,000 products, including technology products and home office furniture at

September 05, 2002

ExtremeTech: Sony, Philips jointly working on Near-Field Communications technology

ExtremeTech reports that Sony and Philips have agreed to jointly work on "Near-Field Communication", a potential competitor to Bluetooth in the short-range personal area network (PAN) market.

AP: Credit card use increasing in college students, worrying lawmakers

Nancy Zuckerbrod reports on the increasing use of credit cards by college students.

Concord EFS: Provides reduced guidance

Concord EFS (NASDAQ: CEFT) is down over 20% this morning following the company's announcements of reduced financial expectations for 2002. The company also announced that Ed Labry, currently president, will be assuming the CEO responsibilities from Dan Palmer in 2002.

September 04, 2002

RSA Data Security: Announces mobile authentication solution

RSA has announced a two-factor authentication solution that uses mobile phones.
„RSA Mobile authentication software provides an order-of-magnitude advance in delivering increased assurance of an Internet user‚s identity in an easy to use form,‰ said Graham Titterington, senior analyst at Ovum. „It is anticipated that it will be popular with both end users and organizations providing services over the Internet.‰

American Banker: It's not too late for bankers to make inroads in payments

In an opinion piece, Edward Neumann and Mary Beth Sullivan ask why banks aren't more aggressively pursuing payment-related business opportunities.
There are a limited number of areas where significant growth in demand over the next several years will create the potential for substantial revenue; the payment business is one. Banks should view the aggressive moves by new entrants and nonbanks as evidence that they are missing opportunities and that their core business is under threat. Eight years after Furash published our study, it appears that some of the more dire predictions are coming true.

ZDNet: Interview: VeriSign's Phillip Hallam-Baker

David Berlind interviews Phillip Hallam-Baker about VeriSign's view of the future. The article he wrote following the interview is also interesting.
The big benefit of this "switch" for the merchant acquirer is that, in the same way he can connect up to one merchant through this switch, he can connect up to any of the others. For the merchant looking to connect to another merchant acquirer, the switching costs of replacing protocols and leased lines have suddenly vanished. As a merchant, you can go to anyone of your suppliers and say "Ho ho, things have changed. Instead of it taking me three months to swap you out for another guy, it's only going to take me three minutes." The pricing power goes to the merchant now. That's the type of thing that happens with Web services, and when you put things through an intermediary who can connect you to anyone of those suppliers. We do this in the area of payment and I can't give you additional product plans, but there are lots of opportunities for the same type of service in Web services.
When we built Visa's Acquirer Services (now Vital Processing Services - a joint venture between Visa USA and TSYS) back in the mid-80's, one of the selling points to merchants (mentioned very quietly!) was that a merchant could connect directly to Visa technically and then broker their business relationship among acquiring banks essentially at will. Of course, merchants directly connected to First Data Merchant Services can do almost the same thing today because of FDMS' multiple alliance bank partners.

Reuters: VeriSign, MasterCard announce anti-fraud partnership

Reuters is reporting that VeriSign and Mastercard have "announced a partnership on Wednesday they said would reduce the risk of online fraud for merchants." Apparently this involves VeriSign's payment gateway supporting MasterCards Universal Cardholder Authentication Field program. MasterCard's press release is now available. Beth Cox also reports the story on
UCAF is a 32-byte field with a variable data structure that is useful to support any number of authentication approaches to cardholder identities, including: MasterCard's Secure Payment Application (SPA), biometrics, digital certificates, smart cards and even mobile and pervasive devices support. MasterCard's UCAF infrastructure allows customer data to be transported between participating merchants, acquirers and issuers through a series of hidden fields. It offers an extra level of protection by allowing customers to type in personal identification numbers along with their credit card numbers and other personal information when buying goods online.

WSJ: Banks use online bill payment in effort to lock in customers

Michele Higgins reports in today's WSJ on the more aggressive marketing of online bill payment begun by banks and major billers.
Why is electronic bill payment becoming a mantra for so many businesses? Some of course hope to save on postage and other administrative costs. But it also reflects how badly companies want to hang onto customers right now. They know that once a customer has gone through all the trouble of setting up electronic bill payment, he or she is less likely to switch loyalties -- 80% less likely in the banking industry, according to Bank of America. "It drives profitability," says John Rosenfeld, e-commerce executive there.
According to the article, Bank of America, Chase and Citibank are now offering free online bill payment to many of their customers. I just checked Wells Fargo and it looks like they're now also offering free online bill payment if you maintain $5,000 in your account.

September 03, 2002

InfoWorld: PayPal's Max Levchin

Jack Mccarthy profiles PayPal CTO Max Levchin.
PayPal, as an online payment system, is a natural target for fraud. And Levchin has almost singlehandedly saved the company from thieves bent on exploiting the system, says Avivah Litan, a vice president and analyst covering financial services at Stamford, Conn.-based Gartner. "If they didn't have Max, they might have succumbed, because PayPal was susceptible to fraud and money laundering, and Max tightened them up," Litan says.


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