Historically rivals, alternative payment providers and banks are laying down their swords.
While many companies offer online payment tools that do not use credit or debit cards, and are designed to process transactions without direct involvement from banks, executives now say that working with financial companies can help encourage consumers to use their services.
Bankers, meanwhile, are meeting the alternative payment providers halfway. Instead of viewing these companies as foes, banks are accepting that these services appeal to customers who want to shop online but don't want to use cards.
"We do have a meaningful chunk of our client base that either doesn't have the willingness or the ability to use a card online," said Steve Karp, a senior vice president for enterprise payments strategy at SunTrust Banks Inc. "We felt it was our responsibility at the end of the day to provide a product or service that meets those needs — as opposed to letting someone else come in and do it for us."
SunTrust, of Atlanta, has been particularly active in developing an alternative payments strategy, and now offers two noncard services to customers.
Karp said that trying to find new incentives to encourage people to use cards was not an option, since people who choose not to use cards online have often carefully considered their decision and are unlikely to change their minds.
"Cards have been around long enough," he said. "Trying to pound them with more messaging is a product-centric approach, not a client-centric approach."
SunTrust is working with ModaSolutions Corp., which offers the eBillme payment system, and Moneta Corp., in part to research how its customers use each product, and in part to keep those customers within its system for any purchases they make online.
SunTrust has offered both alternative systems for about two months, and Karp said it is too early to tell which one his customers prefer.
He said the Moneta system is comparable to PayPal Inc.'s online payment service, because it allows automated clearing house payments to be sent to merchants directly from a bank account.
Moda's eBillme works through the online bill-pay interface, allowing consumers to set up online merchants as billers for one-time e-commerce transactions.
"We're not at all certain what the right client experience is," Karp said. "Maybe it's not Moneta or eBillme, but a lot of people are clearly saying it's not a card."
Marwan Forzley, the president and chief executive of Moda, of Rye Brook, N.Y., said that while the service can be used without the endorsement of any bank, he has always seen banks as potential allies, and that Moda recently began offering banks an incentive to promote its service.
Moda's bank partners get at least 10 basis points of each transaction made through the system; when the bank's marketing efforts can be linked to a sale, the bank gets up to 1.5% of the transaction.
"The more the bank markets, the higher they see going back to them," Forzley said.
Besides SunTrust, Moda is working with seven other banks in what Forzley described as "offline tests." Offline, banks market eBillme through mailings; though these purchases can be tracked through coupon codes, Forzley said it is easier to track purchases online to ensure the bank is properly compensated. He would not name the banks.
The financial advantage to banks working with eBillme is clear, he said, but for eBillme the benefit is a bit more subtle. After all, its system can easily be used by any online consumer without their banks' consent.
Until recently, merchants were the primary marketers for eBillme, Forzley said. This meant that many times they would be marketing to people who may not use online banking or online bill pay.
When banks market to online banking users, there are fewer barriers. "This is a qualified customer," he said. "These are people that use online bill pay today. … They actually yield higher results than when you market to an unqualified audience."
Moneta, of Atlanta, similarly views banks as its most effective marketing channel, said Guido Sacchi, its CEO. "We believe the best way to enroll customers is through our partner banks."
Moneta announced last week that in March it will offer banks a way to issue instant credit for online purchases, similar to the Bill Me Later service offered by PayPal.
PayPal, a unit of eBay Inc., has also been aggressive in trying to work with banks that once viewed it as rivals. In the early 2000s banks such as Citigroup Inc., BankOne Corp. (now part of JPMorgan Chase & Co.) and Wells Fargo & Co. launched their own online payment systems, but all of them — even Wells' joint venture with eBay — were short-lived, and PayPal now dominates the online transfer market.
Dan Schatt, PayPal's senior director and head of financial innovations, said banks once saw PayPal as a competitor but now realize that perhaps the easiest and fastest way to establish a new payment system is to tap into PayPal's technology.
Because of this, and recent moves by PayPal to make it easier to initiate a PayPal payment from a bank account, "we're seeing significant interest by banks" in working with PayPal today, Schatt said.
PayPal announced last month that it had been working with Fidelity National Information Services Inc. to allow FIS' bank clients to integrate PayPal with their online bill-pay services. Payments that today are sent as paper checks could instead be sent electronically through PayPal.
PayPal is also working with S1 Corp. to allow PayPal payments to be made through S1's mobile banking software.
"The things that have traditionally made banks question whether PayPal would be the right fit" — notably that people had to move money first to a PayPal account but now can initiate transactions directly from their bank accounts — "those sorts of concerns have been completely alleviated," Schatt said.
"There has been an onslaught of banks that are FIS partners and are S1 partners that have been very interested in this offering," he said.
Beth Robertson, the director of payments research at Javelin Strategy and Research, said banks have come to realize that the best payment products may not always come from within their own organizations.
That said, it helps that the payment companies are designing their systems around technology banks already use, she said.
"Some of these ACH-based options like Moneta and eBillme are very naturally, to a certain extent, related to the banking environment," Robertson said.
PayPal's recent moves have put it in the same league as the newer alternatives in this regard, she said. "PayPal had been perceived as a competitor and has worked … on changing that perception. They want to be seen as a partner, not as a competitor, to banks." There has been a cultural shift as well among banks, as they have become more attuned to the differences between online and point-of-sale transactions, Robertson said. "A number of years ago … the market wasn't as mature as it is now in terms of online services, and banks were less aware of how to manage the risk associated with those transactions."
PayPal especially has something very appealing to offer banks — its global reach, she said. "That's something that's very difficult for an individual bank to develop."
The smaller companies as well "are focusing on developing a market in conjunction with banks, not in opposition to banks," Robertson said.