Secure Vault Payments, NACHA’s alternative payment system that enables consumers to make online purchases directly from their bank accounts, may gain new prominence from a test it is running with a sizeable client.
FamilySearch International, a nonprofit provider of genealogical information run by the Church of Jesus Christ of Latter Day Saints, is testing Secure Vault. The corporate client was referred by U.S. Bancorp, which has been working with Secure Vault since last year.
Teaming with one of the nation’s largest religious organizations could be the shot in the arm that Secure Vault needs to develop a bigger audience. The partnership also comes at a time when banks are evaluating new payment types to reach consumers who do not have credit or debit cards, or who do not want to enter their card information online. Banks also are looking at alternative payments as a new source of revenue in a regulatory environment where debit card interchange rates are set to fall.
“Given what is going on in the cards market, banks are taking notice of … e-commerce wallets, and they are looking at how to create alternative revenue sources online,” says Zil Bareisis, a senior analyst with research firm Celent.
Consumers also may favor Secure Vault for providing an alternative to typing in card numbers online, something many consumers are reluctant to do out of security concerns.
“The Mormon church is a big organization, and that is what you want in order to prove that payments are secure,” says Stessa Cohen, research director of banking industry advisory services at Gartner Inc.
Secure Vault also is an attractive option for corporate customers because it provides them with a payment form that, since it rides on the automated clearinghouse network, costs less than credit and debit cards, notes Mary Burchette, U.S. Bancorp senior vice president for treasury management.
“We want to provide our business customers with whatever payment type they want to collect,” she says.
FamilySearch, of Salt Lake City, is a corporate client of U.S. Bancorp and the first the Minneapolis-based bank has signed up for Secure Vault. The bank is in talks with other prospective Secure Vault users, Burchette says.
FamilySearch enables consumers who research their family histories through its archive, which is one of the world’s biggest sources of genealogical information, to make donations through its website. U.S. Bancorp signed on with Secure Vault Payments, which is part of NACHA, the organization that oversees the U.S. ACH system.
The pilot will run for an unspecified period, U.S. Bancorp says.
Secure Vault faces an uphill battle in the U.S. because credit and debit cards are so entrenched, Bareisis says. By contrast, in the Netherlands a system called iDeal, which is similar to Secure Vault, has operated effectively for years and now accounts for 50% of online payments.
Banks connected to the NACHA system must enroll merchants and have them put the Secure Vault option on their websites’ checkout page. When consumers click on Secure Vault, they are redirected to their bank’s website, where they are logged in to a payment page that has a summary of the charges they are about to make. Once buyers approve the payment, it is sent by ACH.
“A huge value to the banks is that they are already originating and receiving ACH transactions, and they are already offering Web banking to their customers,” says George Throckmorton, NACHA senior director of payment solutions technology.
Two sectors have naturally gravitated toward Secure Vault in its pilots, which have been ongoing for the past two years, Throckmorton says. These are nonprofits, such as Family Search, and educational institutions. University of Georgia, for example, has been using Secure Vault in pilot since 2009, NACHA says, using Synovus Financial Corp. of Columbus, Ga., as the sponsoring bank.
Such institutions, unlike commercial merchants, often are ill-equipped to handle payments and thus have a strong interest in ensuring their payments are secure.
About 40 banks and credit unions offer Secure Vault today, although they primarily are banks under the Synovus Financial Corp. umbrella. Half a dozen banks not affiliated with Synovus also participate, including the Bank of Maine and Avidia Bank of Hudson, Mass., which joined the Secure Vault network in December.
Still, some analysts doubt that even the FamilySearch example would boost Secure Vault.
“A lot of companies have tried to crack this nut, and in order to do that effectively they must set up an alternative network,” says Julie Conroy McNelley, senior risk and fraud analyst for Aite Group LLC of Boston. More often than not, alternative networks do not attract significant consumer adoption, she says.
“Consumers are happy and comfortable using credit cards, and they need a significant incentive to migrate to unfamiliar forms of behavior,” McNelley says.
In the case of FamilySearch, it has 4,600 locations where consumers can research their family histories at no charge, but these locations are not equipped to take the donations people offer to make. FamilySearch also charges for the costs of postage related to the shipment of archived information.
“People will pay a small fee for shipping and handling,” says Paul Nauta, a spokesperson for FamilySearch. “And we always get requests from people who are touched by the charity that FamilySearch offers, and they ask if they can give back through a donation.”
Two other reasons FamilySearch decided to test Secure Vault were a desire for enhanced security online and the cheaper cost of using the ACH network, Nauta says.
McNelley says the regulatory environment has thrust all alternative payments providers into a new and unknown world. Because they base their business models on being lower cost alternatives to cards, they must prove themselves with interchange set to come down.
“The driver here is the lower cost to conduct ACH,” McNelley says. “But in the post-Durbin environment, it isn’t necessarily going to be such an important driver.” If the cost of debit interchange goes down for merchants, she says they already have a tried and true mechanism in credit and debit cards.
However, an added incentive for merchants to use Secure Vault is that they are assured payment by the banks.
“It provides them with guaranteed payment,” Burchette says.
If the account holder does not have sufficient funds to pay, she says, the transaction is declined. That is different from normal ACH transactions, where a merchant collects the checking account information and then sends the request for a debit. With Secure Vault, the payment is pushed as a credit, Burchette says.
EWise Systems USA Inc., the platform provider for Secure Vault, says its conversations with merchants similarly indicated the certainty of payment via Secure Vault was attractive to them.
“The vast majority of merchants and billers talking to us say a driving force for Secure Vault is the certainty of payment in real time,” says Alex Grinberg, chief executive officer for eWise of Denver, Colo.
