An online payments system that could help banks compete against alternative service providers like PayPal Inc. is getting the green light from NACHA.
The Herndon, Va., electronic payments association is set to announce Thursday that the Secure Vault Payments program is commercially available after a two-year test.
A Secure Vault pilot NACHA launched in May 2008 had 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 (see story).
And the technology, which lets consumers pay for online purchases and bills through their banks' websites using the automated clearinghouse network, still faces some big hurdles. To gain consumer adoption, NACHA and its technology partners need to boost the number of banks offering it while adding a wider array of merchants that accept ACH payments through the system.
As e-commerce activity has expanded, so has the business case for Secure Vault Payments, according to Janet Estep, the president and chief executive of NACHA.
"One of the key attributes in today's environment is really keeping the customers' account numbers secure," Estep said in an interview Wednesday. "That requirement, I think, has grown over the last few years."
So far, a handful of merchants and billers offer Secure Vault Payments as an option to customers; these include two universities, an online food retailer and a travel-booking website. About 35 banks are offering it, most of which are subsidiaries of the Columbus, Ga., bank holding company Synovus Financial Corp.
Estep and Alex Grinberg, the chairman and chief executive of eWise, which developed the technology for Secure Vault Payments, said more banks and merchants are in the process of integrating the system. A big benefit for banks is that the program relies on technology that many already use, Grinberg said.
"The fundamental premise of Secure Vault Payments is that it uses the online banking systems, the consumer authentication systems and processes that the financial institution has in place already," he said.
Persuading enough banks and merchants to use the system could be tough, but the concept does make sense, considering that banks are looking for ways to compete against alternative online payment options like PayPal "where the bank kind of gets removed from the process," said Nancy Atkinson, a senior analyst at the Boston research firm Aite Group LLC.
"Banks are looking to make sure they are part of the payments universe," she said. "This is another way to keep them in the loop."
Generating an overall awareness about Secure Vault Payments is another challenge.
"I don't think Secure Vault Payments has a lot of name recognition or visibility in the merchant marketplace at present, nor does it in the consumer marketplace, but it is an interesting option and certainly would provide another way for initiating payments," said Beth Robertson, the director of payments research at Javelin Strategy and Research in Pleasanton, Calif.
The system uses the ACH network to facilitate payments. It provides instant authorization for merchants and billers and gives consumers an alternative to entering their bank account or payment card information on a merchant or biller website.
In a typical scenario, a consumer would see the program listed as a payment option. Upon selecting it as the payment method, the customer would be shown a list of banks that offer it as an option. The customer selects his bank and is directed to a log-in page for the financial company's website.
The next screen would be a summary of the transaction or bill the customer wants to pay from the selected bank account. The customer is then directed back to the merchant or biller's website.
"The whole transaction is extremely fast," Grinberg said.
Because consumers would be transacting through their bank's website, retailers and billers do not face the security burdens associated with handling payment information, said Garry Hedges, the director of business development at Synovus payment services, a division of Synovus' Columbus Bank and Trust Co.
"On the consumer side, the huge benefit is, you are not divulging any of your personally identifiable financial information to anybody other than where it already exists, and that's your bank," he said.
The University of Georgia in Athens began offering Secure Vault Payments as an option for students to pay tuition, room and board and other expenses in 2009.
Despite doing virtually no marketing for the system, aside from listing it as a payment option in e-mails to students, the school has seen a lot of growth in repeat users, said Lisa McCleary, the university bursar.
Students can still pay using a traditional ACH transaction or credit card, though card payments are assessed a convenience fee of 2.75%, she said.
In addition to regular ACH fees a bank or merchant would pay, a business' sponsoring bank pays an authorization fee to the consumer's bank. The fee is the greater of 10 cents or 1.35% of the transaction amount for consumer purchases, a flat 50-cent fee for consumer bill payments and a flat 40-cent fee for government transactions.
A 6-cent switch fee is charged by eWise to both the businesses' and consumers' banks. NACHA also charges a 1-cent fee from both the businesses' and consumers' banks per transaction.