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The economic downturn has slowed the potential rollout of the electronic payment association Nacha's Secure Vault Payments e-commerce transaction system among online retailers. But niche markets may give the new payment technology a fresh start this year.
A Secure Vault pilot NACHA launched in May 2008 advanced no further than a very limited test among U.S.-based consumer banks and retail Web sites before the economy put a chill on banks' and merchants' willingness to invest in payment software and systems.
The Herndon, Va.-based electronic-payment association that manages the U.S. ACH network now is looking to develop Secure Vault through such niche markets as higher education, nonprofit organizations and government agencies.
Such entities need the type of higher-security, lower-cost online payments Secure Vault supports, NACHA contends.
"Banks are still interested in Secure Vault Payments, but the timing has been difficult," says Samantha Carrier, NACHA senior director of advanced payment systems. "The economy has definitely slowed down potential adoption on the retail side, but we see some potential demand from niches like higher education that could help Secure Vault Payments get off the ground."
Developed by NACHA using technology from eWise Systems USA Inc., Secure Vault enables consumers to complete ACH payments online through their banks' password-protected online-banking platforms without directly exchanging account information with merchants, thus lowering fraud risk.
It also ensures merchants receive payment because financial institutions authorize each transaction. Merchants receive a Secure Vault ACH payment from the consumer's financial institution within 24 hours. With traditional ACH transactions, consumers authorize merchants to debit their accounts, which are typically settled in batches within a day or two. Funds are not guaranteed at the time of the transaction.
Although a Secure Vault transaction costs merchants more to accept than a traditional ACH payment because of the greater security it offers, it still is less expensive than some other online-payment alternatives.
Acquirers pay financial institutions that hold payers' accounts 1.35% of the sale for a Secure Vault sale or a flat 50 cents per transaction for bill payments. NACHA also collects a one-cent network fee, and eWise Systems receives a switch fee capped at 6 cents per transaction.
By comparison, analysts say, merchants pay on average about 2.5% of the sale for an online credit card transaction and about 2.1% of the sale for a PayPal online transaction. Merchants pay less than $1 for a basic ACH transaction.
Secure Vault could be a boon to universities and nonprofit and government agencies seeking more-secure, lower-cost options for high-ticket online transactions that often run into the thousands of dollars, including tuition and licensing fees, NACHA says.
It also could give a break to consumers forced by university and government-agency policies to shoulder "convenience fees" of about 2.75% of the transaction amount when using credit cards to make such online payments through third-party services.
The University of Georgia is testing Secure Vault for tuition payments and may offer it alongside its other online-payment options this year, Carrier says. Although NACHA says the university will offer Secure Vault this year, the school's bursar would not returned calls or e-mails seeking confirmation.
The task of building a payment network from scratch always is tough, especially in a soft economy, analysts say. But Bruce Cundiff, director of research at U.S.-based Javelin Strategy & Research, says Secure Vault is one of a new breed of payment technologies that could help banks cement their role in the fast-changing online-payments ecosystem.
By 2012, credit cards will account for only 44% of all online retail transactions, down from 56% in 2008, Javelin reported last year. "Banks are slowly losing their overall market share of online payments to a variety of new online payment forms, such as PayPal," Cundiff says. "Instead of fearing that these new options will cannibalize their existing programs like credit cards, banks should increase their array of online-payment options to become more competitive."
And Secure Vault is not the only new kid on the block. A handful of other startup ventures share some of its features, notably the initiation of a payment through the consumer's online banking Web site.
But Secure Vault is a "solid concept" that suits the current shift in consumer-payment trends toward debit, says Russ Jones, a partner with U.S.-based Glenbrook Partners.
"Traditional ACH is a good way to move money from one bank to another, but transactions settle a day or two later and it offers little in the way of risk management," he says. "Secure Vault Payments rectifies some of these issues."
Originally planned to run for 18 months, Secure Vault' pilot encompasses 34 Synovus Corp.-owned banks and a couple of consumer Web sites.
Gary Hedges, Synovus director of business development, says though only Synovus employees participated in Secure Vault transactions, the company was "very pleased" with the results.
"Secure Vault Payments has a lot of long-term potential, particularly for billers who handle recurring payments," he says.
Isamax Snacks Inc., a Gardiner, Maine-based bakery, participated in the Secure Vault pilot through its Web site WickedWhoopies.com, and the payment option remains available on its site.
David Bouchard, Isamax Snacks vice president, says Secure Vault has worked smoothly, although the number of transactions participants conducted was very low because of the pilot's limited scope. ATM
