Alternative payment companies are trying to gain scale by joining forces with banks, electronic funds transfer networks and walk-in payment centers.
The strategy is a departure from the past by many would-be alternative payment providers, which have tried to build a consumer base from scratch while signing up merchants one by one.
Acculynk Inc., which has patented technology supporting PIN-debit purchases online, has signed network-access agreements with some of the nation's largest EFT networks.
Moneta Corp. is leveraging close relationships with banks to process debit and credit payments online more cheaply.
EBillme, an online bill-payment and e-commerce processor, is bringing online shopping to unbanked consumers through walk-in payment centers.
Observers say these companies are trying to sidestep some of the problems common with many upstart alternative payment strategies, such as forcing customers or merchants to take extra steps to use their payment services.
"Any payment scheme that requires consumers to enroll or download software, or relies on distributing hardware is just hopeless," said Steve Klebe, senior vice president of business development at Vindicia Inc.
The Redwood City, Calif., company provides an array of online merchants with billing services, particularly recurring payments for digital goods, such as online games, and software and services, such as for online dating. It supports diverse payment types, including credit and signature-debit cards, e-checks through the automated clearing house networks and eBay Inc.'s PayPal Inc. service.
But Vindicia has grown weary of evaluating new alternative payment strategies, Klebe said. "Merchants often seem eager to try out new payment schemes, hoping they will be cheaper or more efficient. But when you dig deeper into most of these new offerings, you realize most of them lack robust fraud screening, reliable or quick transaction reporting, or dispute resolution, and they have little grasp of the legal aspects of handling payments," he said. "There are so many complexities that go along with accepting new payment types that it's not worth it for us to pursue most of these new schemes."
Red Gillen, a senior analyst with Celent, said the odds of any new payment start-up succeeding are slim. "The only alternative payment scheme that has ever caught on is PayPal, and it represents only a small sliver of all payments," Gillen said. "The traditional credit and debit card networks are an extremely efficient vehicle for most merchants, and it is very difficult to beat that system."
Still, entrepreneurs continue to push new payment companies, using the logic that "merchants are fed up with credit and debit card interchange and they want other options," Gillen said. "The thing people forget is that you have to address consumer needs as well, and you cannot easily cut merchant fees and transaction costs from the process without raising prices somewhere. Meanwhile, consumers aren't screaming for alternatives."
Banks, however, are beginning to show more interest in alternative and online payment programs.
Dan Schatt, a PayPal senior director and its head of financial innovations, said that adding PayPal to their menu of services can give banks a sophisticated online payment service at a low cost while still earning revenue from transactions and retaining customers. "PayPal becomes an add-on to the bank's services," he said.
Moneta is also courting banks with a system that routes payments across the ACH network. Moneta claims it offers merchants lower-than-average transaction fees and will share transaction-fee revenue with its partner banks.
"Merchants pay us about half of what a PayPal transaction costs them, and banks offering our service get a share of the revenue of each transaction," said Guido Sacchi, Moneta's chief executive. "ACH is the lowest-cost type of transaction, which gives us quite a bit of margin to work with compared with PIN-debit, signature-debit and credit transactions, which all cost considerably more, especially for card-not-present online transactions." SunTrust Banks Inc. in November launched a test of Moneta's payment service.
Another relative newcomer is Acculynk, which supports online PIN-debit payments. Acculynk said its system is less vulnerable to fraud than other types of online payments and carries lower average interchange rates.
One of Acculynk's initial advantages is its distribution though third-party channels. Several EFT networks have announced plans to offer its system to customers, including NYCE, Pulse, Credit Union 24 and Shazam. Fiserv Inc.'s Accel/Exchange network last November began offering the service as an automatic offering to 2,500 financial companies and merchants that use its network.
Acculynk claims the transaction fees it charges merchants are 20% to 40% less than card-not-present signature-debit rates.
"We help banks stay in the payment chain online so they can still earn revenue on interchange, and the customer stays within their bank site and doesn't get routed off to PayPal or somewhere," said Michael Kelly, Accel/Exchange's general manager.
Moda Solutions' eBillme service, founded in 2005, also is gaining attention. With eBillme, customers buy online, then eBillme sends them a bill-payment request through their bank's bill-payment service. The merchant completes the transaction when the customer authorizes the payment.
Consumers may use any bank account to access eBillme's service, which links to more than 850 Web commerce sites, said Marwan Forzley, eBillme's CEO.
While some critics complain that eBillme's payment process is slow because merchants must wait to be paid before shipping, Forzley counters that about 50% of its transactions are completed the same day they are initiated, and the other half are completed a day later. "We appeal to people who don't want to use credit or debit cards online," Forzley said.