November 08, 2010

U.S. Bank ($291 billion in assets) has joined a bank-and-NACHA-led online payment network called Secure Vault Payments (SVP) that uses the ACH network to process online payments. Mary Burchette, senior vice president of treasury management product management at U.S. Bank, who spoke with us this afternoon about this initiative, was too polite to call it a potential PayPal killer. "It's a payment alternative that's offered by banks rather than companies like PayPal," she notes. "I don't think it's going to eliminate PayPal but for certain consumers and businesses, it's an alternative that will resonate with them," she says.

Under SVP, participating merchants will have a Secure Vault logo on their checkout page, next to Visa, MasterCard, PayPal, BillMeLater, and whatever other payment options the merchant offers. Consumers that click on the Secure Vault logo will be immediately redirected to their bank's online banking page, login with their normal user names and passwords, and be offered a choice of which bank account to use to pay for their purchase. Consumers are then returned to the merchant or biller's site, where they receive a payment confirmation. The consumer doesn't have to share payment information with the merchant and the merchant doesn't have to maintain the security of the data.

U.S. Bank is in the process of signing up merchants, as is Synovus Banks, another early adopter of SVP. NACHA and eWise are also promoting the network to the merchant community, but only a bank can sponsor a merchant. "We've had a lot of interest from our merchant and biller community, but we haven't signed anyone up yet," Burchette says. Gaining a critical mass of merchants, banks and consumers will be key to SVP's success. "The more banks you have signed up, the more consumers you have who will be able to make payments, and the more merchants you have, the more payments will be going across," Burchette observes. "This will really take off when we get more participants onto the network."

From a technology point of view, to sign up merchants, the bank had to build a program to settle these payments and provide reporting to the merchant and to the consumer's bank. On the consumer side, it had to build a web interface to authenticate consumers redirected to the U.S. Bank website, let the consumer login using his normal online banking credentials, locate the account the user wants money to come out of, approve the payment and redirect that to the merchant site. Burchette describes this as a "medium size" development project. The bank also had to create an interface to the eWise system on the merchant and consumer sides; eWise provides the engine behind Secure Vault Payments.

ACH is a batch system, and these payments take place overnight. "One thing the billers and merchants like about Secure Vault Payment is that payments are guaranteed, when the consumer authorizes that payment, the biller knows that's good funds, and it's a lower price point than a credit card interchange fee," Burchette says. There is a merchant fee for Secure Vault Payment, but it's far less than any credit card fee. (Banks set their own pricing.)

U.S. Bank will start providing Secure Vault Payments sometime in the first quarter, Burchette says, focusing initially on certain merchants in the universities, governments, utilities and not-for-profit spaces.

Why aren't more banks jumping on this opportunity to offer bank-centric online payments? "It's only just moved out of pilot, that's probably the main reason," Burchette says. "Other banks have expressed interest in it, but all projects have to get queued up in the development pipeline and it's a matter of what else banks are working on and where their priorities are." Burchette hopes other banks will soon start joining in. "You have to have participants for this to make any sense," she notes.

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