Electronic payments association NACHA (Herndon, Va.) plans to test a program that allows banks to act as intermediaries for consumers' online financial transactions, such as bill payments and purchases. According to Michael Herd, a NACHA spokesman, in addition to easing consumer fears about e-commerce security, the premise of the as-yet-unnamed initiative is to open new markets to banks in the Internet space.
"Confidence in online transactions exists with many consumers already," he says. "But there is an additional market segment where people are not entirely comfortable with all kinds of online transactions. This is a potential new market for banks."
When consumers at an online retailer, for example, click on the Buy button, the process redirects them via a secure network (powered by Sydney-based eWise Systems) to their banks' Web sites, where they are asked to log in, presumably using the same methods the banks require to authenticate users for online banking services, relates Herd. The consumer then confirms the transaction details at the bank Web site and authorizes payment.
In essence, the consumer's account information is never shared with the merchant, eliminating the problems that crop up when third parties improperly store consumers' account data. This is somewhat like PayPal's operating model; however, as Herd quickly points out, "To use PayPal, you have to give your account information to PayPal. With [the NACHA method], the transaction and account information stay between the consumer and the bank."
The idea is similar to the Verified by Visa program, which redirects shoppers to an online bank during an e-commerce transaction, according to Bruce Cundiff, an analyst with Pleasanton, Calif.-based Javelin Strategy & Research. The Visa initiative, while ongoing, has been met with mixed feelings, at least by the online business community, he relates. "Not everyone [i.e., merchants and card issuers] participates in it," explains Cundiff.
At issue, Cundiff adds, is the reluctance by businesses to cede control of an online transaction to another entity. "Merchants ... find [that] any payment process that could lead to confusion among consumers or interfere with the checkout process may lead to transaction abandonment," he relates.
NACHA's Herd concedes that the new program might not be for everyone. "There may in fact be some businesses that would not want to redirect their customers, or certain segments of customers, [to banks]," he says. However, Herd continues, the benefits to businesses from participating in such a program outweigh the negatives. Foremost are the opportunities to expand the market of online customers, have banks take responsibility for protecting customers' financial data and receive a guaranteed payment, he states.
The planned pilot follows an initial proof-of-concept phase in which a small number of participants tested the underlying technology. In the next test, banks will process actual financial activities in real time, according to Herd, who says NACHA hopes to enlist at least five banks and 10 billers, businesses or government agencies in the pilot.