First Data Offers Internet-Based Processing

Banks that rely upon First Data Corporation to process credit and debit card transactions can offer their merchant customers a new communications alternative for payment processing--the Internet.

First Data, a New York-based firm that provides transaction processing for merchant banks including J.P. Morgan Chase and Wells Fargo, will use an Internet-based transaction delivery network from Datawire Communication Network, based in Toronto. "We overlay the Internet with our proprietary transport network, still based on the internet, providing easier access to merchants and facilitating a lot of speed and great reliability," said Farid Kassam, Datawire's director of product management.

For merchants, Internet-based delivery translates to lower telecom costs, faster processing ability and a greater number of options.

Datawire's proprietary Virtual Transaction Network, or VXN, essentially acts as a Virtual Private Network, or VPN, with added functionality specific to transaction processing, such as the ability to closely monitor the transmission of data packets and determine the nature of problems as they arise. "Both network transports VXN and VPN are conceptually the same," said Kassam. "At the implementation level, they provide different value propositions."

To start, merchants can lower their telecom expenses by moving away from dial-up, frame relay or leased lines, which increase in cost proportionally to the number of checkout counters and card terminals. "Putting in a high-speed connection with a DSL circuit enables you to consolidate the telecom facilities," said Craig Polecrone, Datawire's vice president of business development.

Also, the customer experience benefits from online processing. "Typically, a merchant does not have a persistent dial-up connection to a processor," said Polecrone. "All of us have waited in these lines - it takes 20-30 seconds to get a transaction through."

Using the Internet, standard response times can fall under two seconds, leading to shortened queues and increased customer satisfaction.

Finally, once Internet service at the point-of-sale has been established, it's easy to add complementary services such as fraud screening. "Say you're a merchant doing high-value transactions and you want to do an additional fraud screen," said Polecrone. "You can't do that with a point-to-point connection in real-time."

Now, First Data and its merchant bank partners can offer such complementary services to its Internet-enabled customers. But the first step for First Data will be to get a critical mass of its merchants online. "They want to capture market share in this," said Polecrone. "It's evolving from a competitive advantage to a competitive necessity."