Nacha is making another push to promote automated clearing house payments for online purchases.
The Herndon, Va., electronic payments association has been pushing the idea for years but has repeatedly faced criticism that an ACH e-commerce system, though conceptually appealing, would be both complicated and expensive to build and, thus, offer little financial incentive to the banks that would have to use it.
The trade group said Wednesday that it is trying to address these concerns by reversing the pricing for ACH payments, which would generate per-transaction fee revenue for banks that offer the service. The group is planning to test it in the first quarter.
Focusing on the bottom line is a shift from 2005 when Nacha ran a proof-of-concept test of the service, now called, Secure Vault Payments, and said that security was a main attraction.
"We believe this is a service that consumers want and that banks want to offer," George Throckmorton, Nacha's senior director of payment solution technology, said in an interview Thursday. Fees will be low enough to encourage merchants to accept the payment format, he said, but lucrative enough to encourage banks to adopt the technology for their customers.
For most ACH payments, the bank that originates the transaction must pay the processing fee. Under Secure Vault, however, the financial companies for online merchants that receive the payments will have to pay a fee to the shoppers' banks, which initiate them.
Nacha envisions Secure Vault Payments less as a competitor to online card use or existing bill-pay services and more as a competitor to nonbank e-commerce systems such as those offered by the PayPal Inc. unit of eBay Inc. or Google Inc.'s Google Checkout, Mr. Throckmorton said. "The transactions we are targeting, the financial institutions are not getting any revenue from them now."
He said that Wells Fargo & Co., Gardiner Savings Institution, and Synovus Financial Corp. will participate in the upcoming test. Wells and Gardiner both participated in the 2005 proof-of-concept test.
Synovus, a Columbus, Ga., regional banking company, views the service as a potential new source of revenue. Its executives were not available for interviews this week, but Garry Hedges, its director of planning and payment strategy, discussed it during the Nacha Payments conference in April.
"You don't make a lot of money on free checking," Mr. Hedges said. "We give away online banking. We give away online bill-pay."
Synovus does not expect the service to cannibalize its card interchange revenue, he said. "It's a great way to generate fee income that doesn't exist today."
George Thomas, the principal of Radix Consulting Inc., said the revenue potential could encourage banks to adopt Secure Vault, though joining each bank's systems with each merchant's would be daunting. He also said the fee model would put Nacha in competition with the credit card networks. "It's definitely an interchange model," he said. (Mr. Thomas retired in January as an executive vice president of the Clearing House Payments Co. LLC.)
The greatest difficulty with Secure Vault is likely to be not in the execution of payments but in dispute resolution, he said. "The chargeback issue is a real big deal. I know that hasn't been thought through at all," he said. "Nacha will have to set up something equivalent to what Visa or MasterCard has."
Mr. Thomas said that he voted against the plan when he was on Nacha's board. "It's a long-term project. If the price is right, the merchants will come because of the cost of the cards," he said. "Merchants are looking for ways around those high interchange rates."
The basic idea behind Secure Vault is to link banks' bill-pay systems with merchants' checkout pages. When a shopper is ready to buy, Secure Vault would be listed as a payment option.
Clicking on the Secure Vault icon would connect users to their banks' bill-pay services, where they would authorize a payment to the merchant, and the bank would initiate an ACH credit using the CIE format for customer initiated entry transactions, an ACH format that was adopted in 1979.
Consumers' banks would get an authorization fee of 1.35% of the transaction value, with a minimum of 10 cents. Nacha said the system could also be used to pay bills, for a flat fee of 50 cents, or to route payments to government agencies, for a flat fee of 40 cents.
Nacha has been working since 2001 to find a way to use the ACH network for e-commerce payments. An early attempt, called Project Action, foundered over economic issues.
Before the 2005 test, Nacha said that fraud protection would be one of the bid draws, because it permits consumers to make payments without sharing payment information with merchants. However, bankers continued to voice concern about whether it would offer financial benefits.
And even in the Secure Vault Payments service, the consumer's institution will bear some expense.
Both sponsoring and authorizing institutions will pay a switching fee of up to 6 cents per transaction to eWise Systems Inc., which is to supply the switching infrastructure for these transactions. Nacha is to collect 1 cent per transaction from sponsoring and authorizing financial institutions for marketing and governing body costs.
Mr. Throckmorton said that Synovus will be the first bank to test the service, and will likely offer it first to merchants and billers in the five southern states where Synovus operates.As the test expands, the service probably will be offered through large-scale e-commerce sites and billers, he said. "We have a long list of merchants that want to participate, but we had to have the pricing locked down."
