An alliance between Microsoft and Arcot Systems, an ISV that builds software for banks to authenticate online credit-card users, could increase the number of Passport users and shows how Microsoft hopes to license Passport as a platform on which ISVs can build solutions.

Passport Optional ID for Fraud Prevention

Arcot sells TransFort, software that allows credit-card issuing banks to verify the identity of credit card users at participating e-commerce sites, reducing the likelihood of fraud (banks generally cover fraud beyond US$50). Arcot also licenses TransFort to the credit card companies themselves: Visa uses TransFort for its "Verified by Visa" service, and MasterCard is building a similar service called "MasterCard Secure Payment Application." The credit card companies then encourage member banks to sign up for these services, and e-commerce sites to support them. Thanks in large part to these deals with credit card companies, Arcot says that 3,100 member banks are using TransFort and that 10,000 online merchants support it.

The process works as follows: A user makes a purchase at a participating e-commerce site. At the last stage of the purchase, the site verifies the user's credit card number with the issuing bank (something the site would do anyway). At this step, TransFort enables the bank—not the e-commerce site—to display a dialog box asking the user to enter some form of identification. This form of identification is predetermined between the user and the bank: users might have to swipe a "smart" credit card through a reader on their PC; type in the password they use for online banking transactions or the PIN number for their ATM card; or enter a completely different password.

As a result of the deal with Microsoft, TransFort will allow participating banks to accept Passport user IDs and passwords as a form of identification. This will be most useful for TransFort banks that only issue credit cards, and therefore cannot offer users the option of entering an existing online banking password or PIN. If they choose to accept Passport IDs and passwords, these banks will not have to create and administer their own password system simply to verify online purchases.

For Microsoft, this could increase the number of Passport users by giving Internet users another reason to have a Passport. In addition, according to Microsoft spokesperson Adam Sohn, it is the first example of how Microsoft hopes to market Passport as an online authentication platform on which ISVs can build other solutions.

Visa Not Directly Involved

The deal was not between Microsoft and Visa (or any other credit card company), and Passports are not in any way stronger or more guaranteed against fraud because of the deal. Microsoft is not participating in the payment or verification process itself. Finally, the service has nothing to do with Passport Express Purchase, which allows users to store their credit card numbers and other information with Microsoft, then automatically post this information when they make an online purchase; customers of participating banks will only need a Passport ID and password to take advantage of the new option.

For more background on Passport, see "A Closer Look at Passport" on page 12 of the Oct. 2001 Update and "Passport Changing from Closed System to Trust Broker" on page 21 of the Dec. 2001 Update.