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| Debit to hit the Internet soon |
November 11, 2004 |
By Albert E. Wahbe
Consumer-to-business internet commerce has taken off.
Every year, domestic consumers make online purchases of goods and services from Canadian merchants worth $1.5 billion, according to statistics Canada.
In 88 per cent of these transactions, the online merchant receives payment by credit card.
That leaves a big market untapped. An estimated 30 to 40 per cent of North American consumers either don’t have or don’t want a credit card. Teenagers, for example, can’t obtain a credit card until they turn 18, although they may have a debit card and online access to their bank accounts.
Other people simply feel uneasy about using credit cards online. Consider that half of all abandoned online purchases occur when credit information
is requested. If businesses are to reach these consumers online, another payment option is required.
Acxsys Corp., the architect of Interac Direct Payment, Canada’s national debit network, will be offering just that this spring. The Interac-branded service will allow consumers to purchase goods and services online by initiating a debit from their bank account.
Debit transactions from a bank account make perfect sense for online retail commerce. Canadians like to conduct banking transactions in an electronic world; for instance, we use debit cards more than any other country. In 2002, we executed a per-person average of 76.4 transactions with our debit cards,
compared to 54 transactions by U.S. consumers. In fact, Canadians conduct 47 per cent of all cash-register transactions using their debit cards. At the same time, Canadians are also active users of online banking. According to the Canadian Bankers Association, more than 42 per cent of Canadians conduct at least some of their banking online.
Soon, Canadian consumers will be able to combine the familiar experience and accepted practice of using debit cards and online banking. The new payment
option will be a simple and secure system, removing the need for credit-card numbers or other financial information to be disclosed online.
For Canadian businesses, online debit-card transactions will provide same-day, guaranteed payment, just as they do now in the bricks-and-mortar world, ensuring real-time verification and payment. Online merchants will also benefit from the expanded customer base this payment option will reach, helping to increase online sales.
When consumers make purchases on a merchant’s Web site and choose to pay by initiating a debit from their bank accounts, they will select their financial institution (FI) and be transferred to the FI’s online banking site. This is a critical step, as surveys show Canadian consumers do not want to enter their banking information on a merchant’s Web site. But they trust their FI’s Web site to transfer funds securely.
At their online banking site, consumers will enter their usual login IDs and passwords. This is another important feature, as consumers do not have to worry about disclosing sensitive information to a merchant, potentially resulting in fewer transactions being abandoned.
The consumer’s FI will authenticate the consumer on their online banking service and enable the consumer to verify the merchant’s identification and payment amount in order to approve or decline the transaction. If the payment authorization and confirmation is successful, the merchant releases the goods or services.
The consumer will be returned to the merchant’s Web site for confirmation of the transaction and any other services offered. The consumer’s FI sends the
funds to the merchant acquirer FI, which in turn credits the merchant’s account via Canada’s automated clearing and settlement system.
Initially, debit on the Internet will be a domestic service only, provided to Canadian merchants offering goods and services online in Canadian dollars.
To both the consumer and the merchant, the process is seamless. The consumer simply needs access to online banking.
For Canadian merchants and consumers alike, online debit will be a win-win transaction.
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