I would assume authorization and the $1 hold would be enough for the bank to allow the transaction to complete later.Do people actually have their CC card numbers and security code memorized for ALL of their CCs??? I don't. Therefore I'd need my CC card, in my hand, in order to make an on-line purchase.
I can see a few problems right off the bat however: 1) Merchant places an authorization on your card for your purchase, but doesn't actually charge the card until the item ships, and by then the security code will have changed. 2) Code changes within the few moments it takes to enter data into the web form but before the charge occurs. 3) Monthly re-occurring charges.
The changing security code idea does seem to have some potential for some fraud protection.
All changing auth schemes I've worked with have count down timers so that you know when the number is about to flip. I would hope this card does too.