Vendor exploits SET delays

With delays dogging a key protocol for secure Internet transactions using credit cards, a small payment processor is introducing a new service for Internet merchants that is purported to be cheaper and just as secure.

The new service is ECHOnline by Electronic Clearing House (ECHO), and goes into testing this month with full deployment scheduled for February, according to the company.

"We saw a need by our merchant base to do transactions over the Net, and the SET (Secure Electronic Transactions) protocol isn't ready," said Larry Thomas, ECHO's chief technology officer. SET is an emerging key standard for secure credit card transactions over the Net, and it's being finalized by Visa and MasterCard. But widespread deployment isn't expected until late this year.

ECHO is a small Southern California payment processor, which reported $14 million in revenue for the fiscal year ended in September. It also provides card-swipe terminals for 3,600 U-Haul outlets and is working on a terminal for a U.S. Postal Service pilot test of selling money orders.

"We will add SET when the time is right, but it will be very difficult for an SET environment to compete costwise with our environment," Thomas said. He added that SET will require special software for Web merchants, shoppers, and the financial institutions processing their credit card payments.

"The timing and cost for everyone involved is going to be sufficiently high that adoption may take longer than the marketplace or ECHO desires," he said.

ECHOnline will encrypt credit card data before sending it over the Net using SSL (Secure Socket Layer), but it also adds a key feature of SET: keeping credit card numbers away from the merchants. That offers buyers and ECHOline protection against potential merchant fraud.

When a shopper fills out a form to place an order, the form is encrypted and sent to ECHOline directly. ECHOnline authorizes the credit card transaction, then sends the order information with the approval to the vendor, which never sees the credit card information itself.

ECHOnline aims to undercut most other Internet merchant services by offering the same pricing for the Net as it does for mail-order credit card transactions. ECHOnline will charge 57 cents for each transaction plus 2 percent of the deal. Brown said other Net payment processors often charge a $1 minimum.

The ECHO service will be marketed through ISPs and Web site hosting services that maintain catalogs and online storefronts. By working through ISPs, ECHOnline aims to reduce merchant costs for opening Web storefronts. A merchant can get started with a hosted Web site, an Internet connection, and a PC or other device to communicate with ECHOnline and receive email. Those services must create forms according the ECHOnline's specifications or use forms ECHOnline provides.

ECHOnline will compete with a host of online payment processors, ranging from Wells Fargo Bank to Internet-only processor CyberCash.