To better compete against alternative systems that have taken a bite from their interchange revenue, some financial companies are now testing noncard payment services.

SunTrust Banks Inc. began testing a service from Moneta Corp. in mid-October that lets customers pay for online purchases through the automated clearing house network.

Also in October, First Data Corp.'s Star PIN-debit network became the first to sign up for PayPal Inc.'s debit access service, which lets people fund their PayPal accounts with debit cards.

"There has always been a fairly sizable part of the population, for a variety of reasons, who are not comfortable using cards over the Internet to make purchases," Hugh Gallagher, SunTrust's senior vice president for deposit product management, said in an interview.

The Moneta partnership could help the Atlanta banking company generate additional revenue from checking accounts, he said.

SunTrust is offering Moneta's service to 75,000 customers who can link their bank accounts to Moneta and use the payment service to make purchases at participating online retailers. Moneta is offered by 24 merchants, and the company expects to add three more by yearend; its largest merchant client is Delta Air Lines Inc.

The banking company earns a percentage of Moneta's transaction fee; Gallagher would not say how much.

SunTrust's goal in testing an alternative payment system is "to be defensive and at least try to get a few pennies back," Steve Karp, SunTrust's executive vice president of enterprise payments strategy, said at the ATM, Debit & Prepaid Forum held in October by SourceMedia, publisher of American Banker.

Though credit and debit cards dominate the $170 billion e-commerce market, about 15% of online purchases are now made using noncard alternatives, according to Celent, a unit of Marsh & McLennan Cos. The research company estimated that the major card networks could lose about $345 million in volume to alternative-payments next year and about $1.7 billion in 2015.

Gallagher said SunTrust wants to find ways to make its accounts more useful to customers. "We want to remain as the primary financial relationship, and to do that we thought it was much better to offer a full suite of services, including an alternative payment," he said.

Some banks have been reluctant to evaluate alternative payments, fearing that the services would cut into interchange revenue, but Karp said that financial companies need not worry about "cannibalizing" their card operations because the different payment types typically attract different sets of customers.

"There is always going to be the card guy in the room who will say [alternative payments] are taking transactions away from cards," he said, but according to SunTrust's internal research, "that's just not the case."

SunTrust began evaluating alternative payments after it became clear that services such as eBay Inc.'s PayPal and Google Inc.'s Checkout were competitive threats to its debit card revenue, Gallagher said. The company was also motivated by the grim economy and new regulations for payment cards that could reduce revenue.

The SunTrust endorsement is helping Moneta position itself as a bank-friendly alternative payment method, said Guido Sacchi, the Atlanta payment company's chief executive. Banks are "searching for alternative-revenue models, specifically ones that center around the DDA relationship," he said.

However, alternative services still must prove their worth, said Red Gillen, a senior analyst at Celent. "The challenge, both to consumers and merchants, is, why are they better than PayPal?" he said. "Wherever Moneta goes, PayPal would have preceded it."

PayPal also wants to collaborate more with banks, according to Sanjeev Kriplani, a PayPal senior director and general manager. The San Jose company's Debit Access service, introduced in October, lets people link their debit cards to the online payment system.

Banks that use the Star debit network, a unit of Kohlberg Kravis Roberts & Co.'s First Data, can offer the feature to their customers. The Star agreement is "a way for banks to participate in online transactions," Kriplani said. "We want to increasingly partner with the banking community."

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