MasterCard and Visa recently announced their plans to start EMV technology adoption in credit cards, 15 years after the technology was developed (it’s already been adopted in many countries, particularly in Europe).
EMV (which actually stands for Europay, Mastercard and Visa) uses a digital chip to encrypt card data, much more secure than the current magnetic strips. The push will mainly be for bricks-and-mortar stores to update their technology to read the cards by 2015. However, bricks-and-mortar updates have very serious ramifications for online merchants.
Randy Vaderhoof, Executive Director of the independent nonprofit Smart Card Alliance, spoke with me by phone today to explain how fraudsters migrate to online fraud when offline security is increased. Thus, financial institutions abroad, particularly in the U.K., have issued hand-held readers the size of a calculator to customers with EMV cards. Customers then scan their card, which issues a one-time password they have to enter to verify any online transactions. Some banks have also issued a “display” card, which are battery-powered cards with a display and button the cardholder can press to generate a one-time password.
There’s no news yet on what card manufacturers or financial institutions will be offering cardholders for online transactions, but subscription sites should start thinking now of how they can increase their security and decrease card-not-present fraud, which is likely to increase in the near future.
In these economically-strapped times, the Federal Trade Commission(FTC) is cracking down not only on merchants who swindle consumers, but all parties involved in fraud, including payment processors.
Recently, a U.S. District Court for the Eastern District of Texas banned the use of “remotely created payment orders” by Landmark Clearing, Inc. “Remotely created payment orders” allow merchants to enter a client’s name and bank number into a form and are cleared like a paper check, except that in lieu of a signature, the words “Authorized by Account Holder” or “Signature on File” appear. Federal banking regulations require the creator of a remotely created payment order to have the express authorization of a consumer to process the debit, but they are not subject to a lot of oversight, which makes them susceptible to fraud.
The FTC seems to have been tipped off by the exceptionally high chargeback rates Landmark’s clients were producing, sometimes higher than 80%. But the FTC didn’t just go after the merchants — they went after Landmark as well for promoting a service for merchants “with a high percentage of overall returns”.
Landmark is now banned from processing remotely created payment orders. Which means that sites that rely on recurring billing should be 1) seeking to reduce their chargeback rates as much as possible and 2) keeping an eye on their payment processor to make sure they’re on the up-and-up.
For tips on how you can reduce credit card declines and chargebacks, take a look at this on-demand video on our sister site, Subscription Site Insider.
A small 12-person start-up in Des Moines, Iowa is creating a lot of buzz recently with their mission to kill credit cards.
Dwolla lets consumers pay bills and make purchases with the cash in their bank account when shopping online, a previously credit and debit-only platform. According to Business Insider owner and founder Ben Milne started Dwolla after losing $55,000 a year in interchange fees while running his first start-up.
By networking with financial institutions, Milne was able to create a platform that lets people pay for purchases through their bank account, including recurring payments. This can be good news as retailers no longer have to deal with card expiration dates or interchange fees (Dwolla bypasses the dreaded ACH system). People who get paid only get charged $0.25 (that’s right, a quarter) for every transaction, no matter how small or large.
However, it’s unclear whether there are any additional bank fees, and if not, whether it will remain that way. Also, payments may not go through if consumers don’t have enough money in their bank account, causing frustration for both you and your consumers. And since you don’t own the customer’s bank info, you cannot transfer it if you are sold, which has been a major problem for membership sites using other payment alternatives, such as PayPal.
Blokely, a UK-based “cracking good read” for men, has launched a paywall in front of about 90% of its content. (There’s still a regular free story for men who are “afraid of committment”.)
In an unusual spin on typical membership site offers, Blokely offers weekly auto-renew subscriptions as one of its options. We predict this will be a nightmare for the payments processing department. The offer is strongly positioned as £2.50 pounds per week vs £3.95 per month, presumably to push men to a what-the-heck upsell. They’d do better, though, if they offered £3.50 pounds per week vs £3.95 per month, because then the savings are more overt. And, as every subscription marketer knows, really obvious works really well.
It seems that as fast as I turn my head these days, there’s big news in credit card processing, especially in the mobile space. Here’s a big one: Verizon Wireless and American Express announced today that are joining forces to offer mobile payments using one’s cell phone number and a pin number as authentication, rather than a credit card number.
According to AllThingsD.com, 100 million Verizon subscribers will be able to use the new service to shop on any Internet-connected device, including a PC, phone or tablet. Subscribers will have to sign up for a Serve account through American Express, which can be funded by any bank account or credit card. One potential hurdle is that online retailer will also have to integrate Serve in order to take these payments. These various steps could make the road to widespread adaptation bumpy.
“Yes, they have to be Verizon and a Serve customer, but we are preloading a number of devices — smartphones or tablets — with the Serve app, and when you preload there’s a much greater uptake,” said Dan Schulman, group president, Enterprise Growth, American Express told AllThingsD.com. Amex’s deal with Verizon isn’t exclusive so American Express could be partnering with other mobile companies soon.
If you’re interested in learning more about credit card processing and accepting mobile payments for your subscription site, we have a collection of great payment processing resources at our sister site SubscriptionSiteInsider.com
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