In its first quarter as a public company, NETeller posted net income of $6.3 million on revenue of $15.4 million. This gross margin of 71.2% was achieved despite the expense of building up operations in Europe and Asia.

Such a degree of profitability would be understandable if NETeller had a much needed patented technology that competitors could not match. In fact, despite its name, NETeller is no technology player. All it does is transfer money from one account to another, just as banks have been doing for years.

A gap in the market

NETeller is exploiting a gap in a market that has blossomed as a result of the Internet, namely online gambling. According to its prospectus, NETeller has 685,945 member accounts, of which approximately 88% belong to North American residents and 95% of sales were derived from the online gambling market.

Alas, the most lucrative online businesses have tended to be the most morally dubious. Online gambling in the US is beset with legal problems. However, the biggest threat to the industry came when credit card companies refused to allow gambling transactions.

It was not just the law that frightened them off. There was also a factor called gambler’s remorse. It is well known that most gamblers lose their money. In a casino, all they can do is make their guilty way home. However, in an online transaction paid for with a credit card there is another way out. They can claim the card was lost or stolen, and they were not responsible for the transaction.

Identity verification

NETeller reckons it has cracked this problem. Anyone who registers for an account will have their identity confirmed on a variety of external databases, and it says that member specific questions are asked to which only the relevant member would know the answer. Then there are two levels of password protection to ensure that only the real person can access their e-wallet, once an account is set up.

It’s not rocket science, but it gets over a problem that the credit card companies have yet to crack despite their huge resources. Indeed, the industry is only just moving from the era of magnetic strips to chips.

New solutions to card fraud

However, technology that could eliminate credit card fraud is not far away. California-based Beepcard has developed technology that enables a card to perform wireless communication with a PC, telephone and mobile phone, without requiring a card reader. They will be one of a battery of start-ups that see the potential in this market.

Now, according to a report in the New Scientist, the company is working on a credit card that will only work if it hears its owner’s voice. They have built a prototype that packs a microphone, a loudspeaker, a battery and a voice-recognition chip into a credit card. While they have managed to fit this into a card with the same length and width of an ordinary credit card, it is unfortunately about three times as thick. Now they’re working to slim it down.

So technology is just around the corner that will make credit cards virtually fraud proof, and thus usher in an era of secure online transactions. In the meantime, NETeller will continue to enjoy enormously fat margins and remind banks of how much they need a technology to beat off such intruders onto their patch.

This article is based on material originally published by ComputerWire