While some U.S. bankers are setting out to build an Internet-based payment switch, some Canadian bankers are already close to having such technology in place.
The bankers from Canadian Imperial Bank of Commerce, Bank of Nova Scotia, and TD Canada Trust are working with Certapay Inc. of Toronto, a vendor of person-to-person Internet payments.
Certapay is building a switch in extensible markup language to connect the banks to a hub that will eventually let those banks customers pay many other Canadians online and in real time. The system will be piloted toward the end of the summer, Certapay says, by which time a fourth of Canadas five major banks is expected to have signed on.
This XML switch is not expected to displace the automated clearing house in any big way indeed, an ACH will be used to send money to person-to-person payment recipients who do not have deposit accounts at the participating banks but it is supposed to make a dent in cash and checks.
And, though person-to-person payments are not exactly a mainstay of the Internet economy, the companies behind the effort believe that other types of payments will be made possible through the technology, which can more easily accommodate extra payment information than the existing infrastructures.
Canada would seem to have a perfect climate for this type of service. There are few major banks, they have a history of sharing services, and there is a high adoption rate for online banking. Unlike the United States, where both Citigroup Inc. and Bank One Corp. have stepped forward with person-to-person payment systems of their own, the Canadian banks are not offering it yet, and are positioning the forthcoming service as an enhancement to their online banking programs.
Because the service will be offered as an online banking option, consumers will not need to open separate accounts with new passwords in order to send money all they will need to know is the recipients e-mail address. If the recipient is a depositor at a bank on the network, the transaction will be instantaneous.
By offering person-to-person payments through banks, Certapay hopes its service will attract more widespread interest than the ones available in the United States, which are most popular among adopters and auction site users.
How do you bring this to the mainstream? said Zack Fuerstenburg, vice president of product development at Certapay. Consumers have a real reluctance to go to a third party theyve never heard of, and, on the other side of the equation, large financial institutions dont really have a framework or platform they can leverage to offer the service.
Digital certificates will protect the dedicated connections between the banks and Certapay. Consumers will not need certificates of their own, but will use the authentication mechanisms the banks have already set up to validate people when they sign in to do online banking.
Weve written our own messaging protocol in XML, Mr. Fuerstenburg said. Its 22 message sets, and it allows an institution to dialogue with our servers. The messages cover all the fields required to describe a payment to another person, and each participating bank needs only to write an interface that can communicate with these message sets.
Whats really good about XML as a new technology is it doesnt have a service impact when we add new features, Mr. Fuerstenburg said. The current technology that is out there for ATM switches does one thing very well, but its very narrow in capability and can carry very limited information.
While Certapay is trying to propagate its system in countries like Canada that have a small number of large banks, Mr. Fuerstenburg said it would be a lot harder to undertake a nationwide XML switch in the United States. I dont think it would be difficult to get three or so banks to get the ball rolling, but the complexity lies in creating a framework for broader participation, he said. How do you get critical mass in a fragmented market with lots of players? Were in a phase where its only practical to have a few institutions around the table to make this real.
As soon as XML-based payment systems get built in different pockets, Mr. Fuerstenburg predicted, it will be very much like the ATM networks in the 1980s, when they began consolidating and processing each others messages. The key is going to be interoperability.