This story appears in the April 2009 issue of Cards&Payments.

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 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 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.

Such "push"-style payment mechanisms linked directly to consumers' bank accounts are making headway in the Netherlands ("Clicking the Bank Account to Buy," C&P, May 2008).

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. Banks typically set their own rates for ACH transactions, which tend to be well less than $1 per transaction.

University Use
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 consumers use 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 could not be reached for confirmation.

The task of building a payment network from scratch always is tough, especially in a poor 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 roles 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 (see story).

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's pilot encompasses 34 Synovus Financial 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 U.S.-based bakery in Maine, 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.

"Fear of fraud is a big issue for some customers, and an online-payment solution that minimized risk and fraud at a low cost would be a plus for us," Bouchard says.

Another online retailer involved in the pilot, Igourmet.com, also continues to support Secure Vault on its site, but company executives declined to comment on specifics of the test.

Some payment-processing companies and online merchants that announced plans last year to launch Secure Vault participation have put those plans on hold, largely because of the poor economy. Metavante Corp., which announced last year it would offer Secure Vault to its financial-institution customers, has not announced any bank participants, and the company declined to discuss its progress. Apple Vacations Inc., which also announced last year it would offer Secure Vault, made it available to customers in March.

Fidelity National Information Services, a U.S.-based payment-processing company, also said last year it would offer Secure Vault to its financial-institution customers, but it has not yet found any takers.

However, Kishore Bayyapureddy, Fidelity senior vice president and general manager for electronic payments, says banks are interested in the concept.

"Banks are definitely looking to expand their online-payment offerings and in making those payments more secure," he says. "If more interest builds from merchants and billers, we will be ready to offer (Secure Vault) to our customers," he says.

The economy is dampening banks' and merchants' abilities to invest in emerging payment technologies, but Secure Vault could find another route to trial and adoption through higher-education and government niches.

Given time, Secure Vault and other systems directly linked to consumers' online-banking accounts may help banks increase their overall stake in electronic payments.  CP

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