SAN DIEGO — Despite strong skepticism within the industry, Nacha plans to test a system that would route payment for online purchases across the automated clearing house network.
The electronic payments trade association has been touting the idea under various names for years. When it was unveiled in 2002 it was known as Project Action; last year Nacha organized a proof of concept of what it was calling credit-push, because it uses customers’ online banking sites to push payments to Internet merchants.
Samantha Carrier, the director of Nacha’s eCommerce Group, said this week at the association’s Payments 2006 conference here that her team is looking for banks to participate in a pilot test, which it hopes to begin in early 2007, and trying to come up with a new name “that would go beyond credit push.”
The system would reduce risk for online transactions and would appeal to consumers who lack credit cards or do not want to use them for Internet purchases, Ms. Carrier said. There is “tremendous interest” from banks and merchants, she said, though she would name only one that has committed to joining the pilot program, Gardiner Savings Institution in Maine.
The vast majority of online purchases are paid by credit card. Arthur C. Markos, Gardiner’s president, said that means there is no role for his company in his customers’ online purchases. But the system Nacha has developed would enable banks to become involved in the transaction.
“Consumers get to take charge of their checking account, but are working with their bank,” Mr. Markos said. “We think this idea really works.”
Gardiner was one of four banking companies that participated in the credit-push proof, along with Bank of America Corp., Wells Fargo & Co., and National City Corp.
But other participants in the proof of concept are less supportive. Leonard J. Heckwolf, a senior vice president with Bank of America, said that after the proof-of-concept phase ended last year the Charlotte company concluded the system offered few advantages over the well-entrenched payment system now in place.
“The ability to purchase goods and services online, with verification, exists. We think card products offer that,” Mr. Heckwolf said. “We want to support new and innovative payment capabilities that add value to the network, but we think these capabilities exist elsewhere, and the cost to build this infrastructure will be significant.”
Bank of America has no plans to participate in the pilot program. Calls to National City, of Cleveland, were not returned, and a spokesman for Wells Fargo could not say whether the San Francisco company would be in the test.
Nacha, of Herndon, Va., hopes to announce the participants by August and will accept additional participants for the 12-month pilot after it gets under way.
Consumers can already use the ACH system to make online purchases by providing their banks’ routing numbers and account numbers to merchants, which use that information to initiate an ACH debit. But Ms. Carrier said many people are uncomfortable giving out this information.
The basic idea behind the new system is that online merchants will add links on their payment pages to banks’ bill payment sites. Shoppers will fill their Internet shopping carts, select their bank, log in to their bill-pay site, and initiate an ACH credit payment to the merchant.
This reduces risk because the retailers never have their customers’ bank account information — it cannot be misused by unscrupulous merchants or stolen by hackers. It also improves security because the shoppers must authenticate themselves at their banking sites.
The redirected transactions, and the payment information moving from the banks to the merchants, will all move across a virtual private network operated by eWise Systems Ltd. of London.
Ms. Carrier said people want a safe alternative to credit cards for online shopping. The new payment system, she said, “gives merchants the ability to tap into a new market, and will generate sales lift.”
Rossana Salaris, the senior vice president of The Clearing House Payments Co. LLC, who runs the New York company’s ACH unit, Electronic Payments Network, said there is another important reason merchants might be interested in such a system. “Merchants want this because they don’t want to pay interchange” fees to accept card payments, she said.
However, George Thomas, an executive vice president at The Clearing House, said the costs to develop this system would almost certainly be passed on to the users as a different type of fee. “If there is no ROI for the banks, why would they pay to develop this infrastructure?” he said.
Ms. Carrier confirmed that the current model calls for receiving banks — the merchants’ banks — to pay a fee to the originating banks — the customers’ banks. The receiving banks would probably pass these fees on to the merchants, she said.
She would not say how large the fee would be, but did say that there will probably be different fees for different types of payments processed over the system, likely depending on the receiver’s volume. She said this system is more complex than banks’ bill-pay sites and that the payments would be more expensive than standard ACH payments.
“It will be priced competitively with cards,” Ms. Carrier said. “It will not be priced like an ACH. People understand that this is very different from an ACH transaction.”
But Mr. Thomas said merchants would not take to a complex, untested system with a negligible price advantage over cards. “This is not going to happen,” he said. “This project is dead on arrival.”
