NACHA Will Start Testing a New Internet Payment Type Next Spring

The National Automated Clearing House Association, Herndon, Va., is preparing to launch a test early next spring of a new electronic transaction type for payments on the Internet. The new payment category would be best suited for payments to so-called spontaneous retailing sites?those operated by hard goods merchants, rather than utilities or other billers?and would rely on banks' online banking programs to provide user authentication. The current NACHA standard entry code for online transactions, WEB, lacks strong authentication and as a result has struggled to gain acceptance among consumers and merchants for ordering goods from retail sites like amazon.com. WEB, on the other hand, is proving popular on billers', Internet service, and government and educational sites where customer relationships are closer and less risky. “We still have a need for robust authentication,” said Julie F. Hedlund, senior director of the payments association's e-commerce group, in a presentation of the new transaction type this week at a NACHA conference in San Francisco. Hedlund said that the NACHA board has approved a small, proof-of-concept test of the proposed Internet payment type and that three of four banks sought for the test have already signed on, Wells Fargo, Bank of America, and National City. NACHA hopes to recruit a community bank to join these three, along with a trio of merchants and two vendors. Hedlund said the plan is to have all participants in place by the end of next month, to develop technical specs over the winter, and launch the test by April, with recommendations ready for the board by next June. The first meeting among participants is set for Oct. 19, she added. The as yet unnamed payment type would complement rather than replace WEB, and would rely on an old idea called “credit push,” so named because consumers would use their banks' online bill-payment programs to initiate payment to online merchants rather than simply authorize merchants to debit their accounts electronically. In the NACHA plan, a consumer shopping on an e-commerce site would, when ready to check out, select a payment option that would link her to her bank's online banking site, where she would log in with her user name and password, authenticating herself for the Web purchase. She would authorize an ACH payment here and then return to the merchant's site to complete the checkout. This “push” model is one that has been followed recently by other online payment processors, notably in Canada. Indeed, NACHA began developing the idea seven years ago and some time later tried to introduce a program called Project Action, for ACH Credit Transaction Initiated Online, that failed to win market acceptance. Hedlund thinks the prospects for the new payment type may be better now, what with the increasing popularity of the various categories of ACH-based electronic check services. “What's different now from when we started Project Action is that the ACH is more prevalent, and this allows ideas like credit push to get some traction,” she told her audience. WEB transactions overall last year experienced a 1.8% return rate, less than the 2% rate on point-of-sale ACH transactions and well under the 7% rate on phone-based payments, according to NACHA statistics.