Verified by Visa is a payer authentication program that allows cardholders to sign up at their issuing banks website and create a password to be used for online transactions. Once enrolled, when buying items online, buyers will be prompted to enter their password prior to completing the transaction. The merchant has to also be participating in the program otherwise you won't be prompted for your password. It's designed to be a consumer's digital signature and help curb credit fraud losses.
I've always found this program interesting because in the first place, since 2002, Visa card holders get automatic fraud protection. From Visa's site:
Use your Visa card to shop online, in a store, or anywhere, and you're protected from unauthorized use of your card or account information. With Visa's Zero Liability policy1, your liability for unauthorized transactions is $0-you pay nothing.So without any downside, why sign up? Visa's effort to get both merchants and consumers to sign up hasn't been very successful to date despite trying to offer fraud protection incentives to merchants who use it and marketing it to consumers. Online merchants have been reluctant to add any more steps to the checkout process and jeopardize a sale. Visa has been trying to tweak the rules and incentives to generate interest but I wouldn't hold my breath. Buyer authentication is a hot area right now and there are a lot of promising technologies. I just don't think that password authenication is going to cut it. Comments: 0 | Post a Comment
Capitalism is alive and well in the payment processing industry. Since 1949 when Diners Club issued the first credit card, the credit card issuing world has been highly lucrative. It's become even more lucrative considering that in the past six years the fees that issuing financial institutions banks charge on every credit card transaction, known as Interchange, have increased an amazing 117%. That increase of profits has come directly out of the bottom line of every merchant who accepts credit cards a form of payment.
Those profits have also lured in quite a few players who want a piece of the action. Companies like PayPal, Google Checkout, Amazon, Tempo, Bill me Later, and Gratis Card are just a few who are trying to capture a small part of the pie. Others like Dream Play Ventures have been trying to squeeze themselves into the value equation by offering valued added services on top of processing like targeted advertising.
The opportunity for these companies is that Visa and MasterCard, which collectively account for something like 70% of all processing volume, represent over 20,000 financial institutions that are fat and happy making a lot of money with their current revenue model. They've unilaterally been able to raise their fees and dictate their terms for years now. They've created a lot of animosity in the process and left the door wide open for new entrants.
Each of the alternative payment providers has a different value proposition for merchants. Companies like Gratis Card and Tempo are making a play for lower cost interchange which offers merchants a reprieve in their credit card processing fees. Their focus is also primarily on swiped merchants like restaurants and retailers. Other providers, who are focused on ecommerce, like Bill Me Later, PayPal, Google Checkout have created value propositions that include higher conversion rates, customer convenience and accommodating buyer security fears and preferences.
There is certainly a land grab going on right now as all of these providers are working both sides of the demand and supply equation. They need consumers to demand the service from merchants and merchants need the demand to justify the option. PayPal and Google obviously see this and have been trying to buy market share to secure a top 1, 2 or 3 position. There are many more entrants that what I've listed and their not all going to make it. Unlike the current boom in social networking where new entrants can be successful by carving out a vertical, payment providers including alternative payment types will have to achieve some level of critical mass to remain viable. If they don't, they'll end up like Peppercoin, a micro payments provider, who raised over $10MM and then got swept up for something probably substantially less than that.
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PayPal is a great story. In less than 8 years they've been able to sign up 133 million users in over 100 markets. In 2006, they generated nearly 30% of eBay's (PayPal is owned by them) $1.4 billion operating income.
But Amazon is about to rain on their parade. The secret to PayPal's lucrative business model is that they charge the equivalent of credit card fees for transactions that really amount to ACH (electronic check) transactions.
The cost of an electronic check transaction is substantially less than a credit card transaction. (Click here to see where credit card fees come from.) For example if you take payment from a PayPal user who's pulled funds from their checking account, you're going to pay 2.90% and .30 cents. PayPal's cost on that is less than a penny.
If someone uses a credit card to fund their PayPal account, PayPal increases the rate and charges the receiver 4.9% and .30 cents. PayPal has been making huge profits for years now using this model. Amazon has squarely set their crosshairs on PayPal's making machine of processing electronic check transactions at credit card rates.
Amazon is the only player in the online payments space that could pull this off. They are leveraging 69 million registered and active Amazon users who can immediately replace their PayPal account with one from Amazon. So with a third and probably final major entrant into the online payment processing space, PayPal, Google, and Amazon will have to hash it out between themselves.
Google's attempt at buying market share by waving fees has not been successful and their inability to access funds from a checking account has been a shortcoming. We'll just to wait and see if this is a space they really want to play in. Until then, most merchants are trying to gauge demand for each different payment type to determine if integrating all of these different methods makes sense. PayPal had the sandbox all to themselves for quite sometime but they better start brainstorming about ways to replace the income they are going to lose when Amazon starts raining on their parade.
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