Stealthy startup turns your phone into a remote control for your credit cards

Imagine being able to limit your child’s debit card to a certain spending amount — or for use only at certain merchants. Or imagine forgetting your wallet in a taxi but knowing your cards can’t be used once they’ve left your proximity.

This is all possible now.

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Ondot Systems is coming out of stealth today with its launch of CardControl, technology that gives users instant, anytime control over their payment cards from a smartphone app. The San Jose, Calif.-based company also just raised $18 million in new funding from undisclosed investors.

You can access Ondot’s technology via your bank when you sign up for a payment card (debit, credit, etc.), which you can access through a mobile app. Ondot lets you turn a card on and off, set geographical limits, set preferences for payment types (ecommerce, certain merchant types, etc.) and spending limits, set up push notifications for certain events, and review transaction and account details.

Under the hood

On the surface, CardControl appears to be built on technology linking mobile devices and plastic cards.

But it’s not — the technology is actually resting at the level of card processors who handle thousands of banks and millions of cards. The Ondot team has created user context and preference-setting technology that integrates seamlessly into authorization streams using the ISO 8583 standard (the special protocol these servers use to communicate), and it lives in the processors’ servers just as fraud engines do.

The only risk the company faces is “if people started to only pay with cash,” Ondot chief executive Dr. Vaduvur Bharghavan told VentureBeat in an interview.

Because Ondot’s technology sits at the processors’ level, it controls electronic payments, not the plastic cards themselves. A CardControl user can control ecommerce transactions as well.

Ondot is currently partnered with four of the top 10 processors and is now providing Ondot access to 10,000 banks and their customers. The company forged these partnerships during its three-year stealth period. Cementing those deals was key to customer acquisition as well as to the overall success of the product.

The company plans to license its technology on a per-user basis.

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Less fraud and the bottom line

Fraud is expensive for banks. 2012 saw $11.2 billion in fraud loss, and on average it takes 52 days for consumers to detect fraud, leading to huge costs to banks.

Lone Star National Bank (LSNB), an Ondot pilot customer, has been using the solution in production for the past year and has experienced 60% less fraud, 54% more card usage, 48% more card spending, and 15% more customers signing up for cards.

“With CardControl, we were able to decrease our fraud losses from approximately $450,000 in 2012 to $270,000 in 2013, a reduction of 40%. This has been a big breakthrough, and justifies the solution on its own,” LSNB chief operating officer David Penoli said in a statement.

“Getting our cardholders to use their cards over 30% more has been the most cost-effective way to increase debit card margins. Not only does it drive direct revenue, but engaged cardholders are more loyal, have higher deposits, and also come to us for loans and other financial services, which drives additional pull-through revenue,” he added.

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Despite a successful pilot program and encouraging statistics, Ondot is still facing some challenges: “Getting to the point and convincing large payment processors to let you into their [authorization] stream” is the first according to Bharghavan.

“Second big issue is that it’s still a work in progress. Every card should have a lock, but creating the momentum in the market place will happen,” he said.

“Third: Anytime you build a company that is not built on incremental value, but you’re trying to change something massive, it takes time and resources,” Bharghavan said. 

Furthermore, some consumers may be concerned about losing their smartphones or what to do if they can’t access them (battery has died, no immediate access, and so on). Also, Ondot will be depending on banks for their product’s marketing as it is whitelabeled, and a failure on the bank’s part to convince cardholders to sign up would affect Ondot’s bottom line.

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Ondot was founded in 2011 by a team with strong experience in the mobile, security, and payment industries.