uppose you have a merchant who is enjoying a fair amount of success with an online presence. Suppose you can increase that success considerably. Would you make such a service available to that merchant? Of course you would. Well, that's the premise that 3PEA Technologies, Inc. is banking on.

3PEA Technologies is the brainchild of two guys who recognized the need for a solution that enables PIN-based debit processing on the Internet. Daniel Spence, CTO for 3PEA, called upon his IT background, and the other co-founder, 3PEA President Mark Newcomer, relied on his extensive financial management background to develop an embedded Internet financial transaction-processing solution to meet a new market demand. They opened the door to 3PEA Technologies in Torrance, Calif., in February 2001 and got to work. The result: an innovative product called the PayPad.

The PayPad is a computer peripheral that plugs into a home PC or laptop, in effect creating a home POS terminal. A different approach, to be sure, having the point-of-sale located at the consumer as opposed to the merchant. It's truly "pay at the table" with 3PEA.

The core of 3PEA Technologies is the strong belief that authenticated access to debit networks for Internet payment processes has become necessary in certain markets. According to Newcomer, using online check processing for access to personal bank accounts is growing, but it will never achieve the broad acceptance of other Internet payment processes.

"If consumers are concerned about giving credit card information to merchants over the Internet now," he said, "then they certainly are wary of giving out personal bank account information to merchants."

3PEA sees the alternative as online debit transactions, and what an alternative it could prove to be. According to 3PEA, there are about 100 million debit cards in circulation in the United States and 34 million in Canada. That's a lot of potential for Internet payments with the PayPad. 3PEA Technologies is not alone in its quest. There are several Internet debit vehicles being proposed, many that utilize Public Key Infrastructure (PKI), proprietary cards or a combination of both. Spence questions their effectiveness. His contention is that while these schemes may be sound in their design and security, they still involve the issuance of special cards or digital certificates or, in some cases, both. Some may also require back-end process and infrastructure modifications, increasing issuer and processor costs of deployment.

These solutions may be hardware independent on the client computer side, requiring no additional hardware on the consumer computer, but they cannot authenticate the existing magnetic cards and associated PINs (several hundred million worldwide) in circulation today. 3PEA Technologies offers a different design with a different application. 3PEA believes that since these new systems involving PKI schemes require upgrades for the processors and issuers, they cannot fully leverage the existing EFT infrastructure. Since they also come with significant administrative and logistical overhead, acceptance of these solutions, particularly for U.S. card issuers, has been less than favorable - a factor that may work favorably for 3PEA. The first generation of Internet payment-processing platforms was created by third-party processors, 3PEA's target market. These solutions were driven by merchant needs, and third-party processors provided those solutions. These solutions were and are autonomous; they can process almost any issued credit card.

Today, there are merchants who are looking for a second-generation solution that provides authenticated access to debit networks. Third-party processors are again looking for a solution that is independent of card issuers and does not require upgrades for back-end processors. The independence comes from the ability to process debit cards that are not associated to certain issuers or require proprietary implementations to support their security schemes.

3PEA addresses these issues by providing cost-effective consumer hardware peripherals that can act as ATM/POS terminals on the perimeter of the Internet for a third-party processor. How exactly does it work?

Using ABA (ANSI/ISO) accredited cryptographic, key and PIN-management standards, the 3PEA PayPad reads Track2 data and encrypts a consumer's PIN in firmware before routing the transaction via a secure layer over the Internet to the third-party processor's payment gateway.

Once the processor has acquired the transaction on the front end, the transaction then can be securely sent to the associated back-end processor for PIN translation and a handoff into the EFT network for routing to the card issuer for authentication of the PIN. The price of the PayPad is less than $50 in orders of several thousand for a payment-solution provider. In most business models, the merchant foots that bill, so there is no cost to the consumer. 3PEA has set it up so that merchants purchase the equipment and provide it to their customers.

The PayPad has received Microsoft Windows Hardware Quality Labs certification (WHQL 2000), supports Windows 98/NT/ME/2000/XP, and has been specifically designed for seamless end-user deployment in mass quantities for the payment-solution provider. The PayPad is comprised of an IC card reader, a magnetic stripe card reader and an encrypting PIN pad with USB connection. The PayPad also has received USB and EMV certifications.

Installation is easy. It is a simple plug-and-play device for any home PC or laptop. One boot and the customer is up and running to the merchant's Internet storefront. The turnaround time is estimated at four weeks from the time contracts are received until the point at which accounts are set up and equipment is deployed. 3PEA also will private-label for ISOs and merchants. The target market for PayPad is definitely third-party processors. "We will work with anyone providing third-party payment solutions for the Internet," Newcomer says. "Someone who has demographics that can take this product to their merchants. Someone who has a real need, whose customers have a real need."

3PEA Technologies is not specifically working with any ISOs. "Our processing partners will work with ISOs," Newcomer says. "We see third-party processors and ISOs working together to get our product out to the consumer."

Just how is 3PEA getting it to the consumer? Via direct marketing to third-party processors and possibly high-end ISOs. According to Newcomer, residual income will be realized through commissions paid on each terminal sold as well as a standard Internet per transaction Internet rate, paid through the processor.

A side note: What's up with the company's name?

"The name 3PEA has no special significance," says Newcomer. "Although it is often a question asked, the truth of the matter is that we were looking for a short name that was available as a dot-com and one we could trademark, as well as something catchy in the way of branding.

"The end result: We have grown quite fond of the name and enjoy the fact that along with our unique approach to developing inexpensive hardware solutions geared toward PIN-based e-payment alternatives, our unique name helps us to stand out in the crowd." Recently, PayPad was integrated into a well-known processing network in a reasonably short period of time. Third-party processor Citadel Commerce certified the unit as well as the complete transaction flow and will begin rolling out PayPad to its merchant base this summer.

"For ISOs looking to resell an existing complete solution, they can contact Citadel Commerce," says Newcomer. "For ISOs looking to create a payment solution using their own processing partner, they would contact us. We're hoping ISOs will read this article, like what they read and call their processors to get on board with the product."

Toward that end, 3PEA is counting on many more processors following Citadel Commerce's lead. "This is an emerging industry because other solutions offering online authenticated debit are not viable," says Spence. "There's no uptake for any other authenticated debit schemes right now. However, this is a niche market. This is not a mainstream e-commerce alternative at present."

Spence adds, "Certain niche models do have a need for access to authenticated debit. I think it will be a slow growth but one we're willing to make. It takes awhile for the industry to wrap its mind around something new. But the numbers are large. There's money to be made."

3PEA Technologies is optimistic it will achieve its goals based on those numbers. It sees other customers coming in as the market emerges, and as that happens 3PEA will be there.

"For us, providing the best and least expensive product is the ultimate solution," says Spence. "We are absolutely pioneers in this industry."