Ashe Pay Bets Consumers Will Pay for Faster E-Commerce Payments
Transactions have long been free for consumers, but Ashe Pay is betting that consumers are willing to pay a $1 monthly fee to be part of a network that allows instant payments to vetted merchants.
Merchants pay a $10 fee to join the Ashe Pay network, which has no transaction fees and does not allow chargebacks. The system uses automated clearinghouse (ACH) and tokenization, a security method that assigns a short-term token to use in place of account credentials.
Over a decade ago, many banks charged fees of about $5.95 a month to consumers for using online bill pay, but eventually most banks chose to offer the service for free. Other companies, such as Western Union's eBillme, have also offered services that route e-commerce purchases through bank bill pay.
Ashe Pay's value for merchants seems clear, but the value for consumers is less obvious, said Rick Oglesby, a senior analyst and consultant at Double Diamond Payments Research.
"There's big demand on the merchant side for reduced cost for payment acceptance, both card present and card not present," said Oglesby. "But the reality is it's hard to get consumers to change behaviors. Consumers will pay fees if the value proposition is compelling but membership fees usually work if the consumers are being rewarded not just for easy payment acceptance."
But consumers are sometimes willing to pay for speed. Regions Bank, for example, is one of the few banks that charges a fee for mobile check deposit and it has found that its customers are willing to pay a higher fee for faster deposits.
To use Ashe Pay's system, consumers make an online bill payment to Ashe Pay. The money is then put into the consumer's prepaid account, and consumers push a transaction to merchants through their email address. Ashe Pay also offers an application programming interface (API) for merchants to integrate into their websites.
Ashe Pay is getting an early boost from virtual currency enthusiasts, according to Teddy Shim, CEO of the startup that was founded in May.
A good portion of our early adopters are in the virtual currency space, said Shim. When we built the system we didn't have virtual currency in mind...but when we launched, consumers were using us to buy virtual currency.
Because the industry is still so new, buying virtual currency, such as Bitcoin from exchanges, is not always intuitive or user-friendly. To get U.S. dollars into an exchange to use for purchasing cryptocurrency, many platforms support only wire transfers, which can be expensive and take several days to clear.
Virtual currency enthusiasts have not always fared well with ACH-based payment systems. Dwolla, another ACH payment network, had a significant number of Bitcoin users moving money on its network when the virtual currency first started gaining traction. But the relationship between Dwolla and its virtual currency customers went sour not long after.
Bitcoin exchange Tradehill sued Dwolla for $2 million in May 2012, saying that the alternative payment provider led to the exchange's demise with a fraudulently advertised no-chargeback policy.
About a year later, the Department of Homeland Security issued a court order telling Dwolla to cease operations with Mt. Gox, a now-defunct Bitcoin exchange that was based in Japan. Homeland Security seized more than $2.9 million from Dwolla in relation to its inquiry into Mt. Gox as an unlicensed money transmitter.
Bitcoin businesses have had trouble working with traditional financial services participants, including banks who view Bitcoin as too high-risk as federal and state government regulators probe into bank practices.
Ashe Pay is being very clear about its policies to be a partner for the virtual currency industry, said Shim. Ashe Pay launched quietly a month ago and currently has about 1,200 users.
Security has been another concern in the payment industry, which Ashe Pay hopes to address with its closed-loop system.
"With the open-loop model for card payments, everyone in the payment chain has to do their job perfectly or the system fails," Shim said, giving Target's data breach last year as an example since the payment accounts were compromised through a security gap attributed to its heating and air conditioner supplier.
Because of this closed-loop model which can only be enrolled in through a bank's bill payment service, regulators have given Ashe Pay the nod of approval for a system without chargebacks, said Shim. Most payment systems must have a chargeback method for consumer protection purposes. Because the account must be loaded with a bank account, Ashe Pay cannot be used as a person's primary financial instrument, Shim said.
"The reason we see a trend for startups using the ACH rails is because there are no other rails to use if you want to work differently than Visa and MasterCard and the other card rails; it's hard to work innovatively if you're working on someone else's rails with their own rails," Shim said.