For a number of years now, banks and financial institutions have sought ways to enhance the security of payment systems while making it easier for consumers to make purchases. Checks, debit cards, and credit cards seem to be the most preferred way for Americans to pay for goods and services.
Ideally, new payment systems should help protect the merchant and payment system processor from fraud, and the consumer from identity theft, and provide a faster, more convenient way for the consumer to conduct a transaction. While balancing all these needs has been somewhat challenging, new secure payment systems are beginning to show up in the United States in increasing numbers.
One new payment method is RevolutionCard, a card based on a personal identification number that generates up to 90 percent fewer unauthorized transactions and lowers merchant card acceptance costs by 80 percent compared with other cards. Provided by Revolution Money Inc., the card is now the largest PIN-based transaction card in the United States. The list of merchant credit card processors accepting RevolutionCard includes five of the largest payment networks in the country.
In Japan more than 15 million people use a cell-phone-based “mobile wallet.” The mobile wallet has an encrypted “smart chip” inside it that contains the buyer’s identification information, so when consumers are ready to make a purchase, they simply enter a password on their cell phone key pad and wave their cell phone over a reader at the point of sale. Without transferring any confidential information to the merchant, a payment transaction takes place. The marketing folks call it “wave-pay-go.” Cell-phone-based mobile wallets are very slowly finding their way into the United States market. U.S. small-scale trials of this method of payment are underway in San Francisco and Atlanta by MasterCard.
Radio frequency identification payment systems have been used in the United States for a number of years. Your identification information is stored in a central server and when you pass the payment key fob or smart-chip-embedded card near the point-of-sale reader, your account is debited. These are often at service station gas pumps and recently fast-food restaurants. Merchants who accept RFID-enhanced payment cards often pay a flat 20 cents per wireless transaction whereas a traditional credit card could be as high as 1.9 percent.
More than 32,000 merchants nationwide accept the VISA payWave card and VISA micro tags, which let customers wave their VISA card or a micro tag in front of a secure reader to pay for purchases, without having to sign. Merchants indicate that accepting this form of payment is faster, more convenient, and safer for both consumer and merchant.
Biometric fingerprint systems are being used in some grocery store chains to make checkout faster. Like the other wave-pay-go cards, you register your credit cards and payment preferences online before you use the system. When you go to your favorite store for the first time, they positively identify you and register your fingerprint on a scanner. When it is time to check out your groceries, you press your thumb on the fingerprint reader, and the point-of-sale device asks you which of your registered payment methods you want to pay with. This method of payment is becoming very popular in Europe and in some grocery store chains around the United States. It is safe and secure, and you don’t have to remember a PIN number, though if you choose to, you can require a PIN number to be entered at the same time you scan your fingerprint at checkout.
Online credit card payment systems currently remain the most vulnerable to fraud. However, because of the speed in which transactions are processed today, banks and credit card processors are using sophisticated algorithms to spot potentially fraudulent transactions quickly, helping keep credit card transaction costs lower. One company, SafePay Solutions, specializes in e-commerce payment systems and online delivery of software. SafePay uses patented encrypted technology to protect both sellers and buyers of digital media over the Internet.
In the next few years, we will see payment systems that balance safety and convenience, whether they are cell-phone-based, RFID-chip-based, or smart-chip-based. When that goal is met, the frequency of losses suffered by small businesses, consumers, and banks will go down significantly.
Sam Thacker is a partner in Austin, Texas–based Business Finance Solutions.