Now Live, NACHA’s Secure Vault Payments Looks to ‘Ramp up’ in ’08

NACHA's online-payments pilot went live March 31 with one bank and one merchant and expects to have three to five more financial institutions, three to five more merchants, and between three and five billers participating by the end of the year, an official with the Herndon, Va.-based organization says. “The great news is that this is just the beginning,” Samantha Carrier, senior director for advanced payment solutions at NACHA, tells Digital Transactions News. NACHA plans to announce some of the participants in the program, called Secure Vault Payments, at a trade show the organization will be sponsoring two weeks from now in Las Vegas, Carrier says. She confirms that Savings Bank of Maine, formerly Gardiner Savings Institution FSB, will go live as both an authorizing bank and sponsoring bank by the time of the conference. Carrier says the bank has an unnamed merchant ready to go live when its connection is turned on. In Secure Vault Payments, authorizing banks are consumers' banks, while sponsoring banks are those that sponsor merchants into the network. Payments are handled through the automated clearing house system, for which NACHA is the governing body. Since they are authenticated by authorizing banks, transactions are guaranteed to merchants. Carrier says the pilot, which is set to run for 18 months, should start handling transactions for consumers by the time of the trade show. So far, the Secure Vault Payments system has been switching transactions for employees of NACHA and other system “stakeholders,” Carrier says, in what she terms a “soft launch.” Payments have been for goods sold by igourmet.com, an online seller of cheese, wine, gift baskets, and other food items. The merchant is sponsored by Columbus Bank & Trust Co., a unit of Synovus Financial Corp., the first financial institution to participate in the network. Carrier says igourmet showed an early interest in using Secure Vault Payments. “When we talked to them, they said they wanted to be the first live merchant,” she says. “They went to Columbus to be sponsored into the network.” Igourmet did not respond to inquiries from Digital Transactions News. Transaction volume so far has been “low by design,” Carrier says, but she expects that number to “ramp up” steadily throughout the year as more banks, merchants, and billers join the system. She will not give a specific projection. Among the expected participants will be most of the 36 banks that are part of the Synovus holding company, she says, though she counts Synovus as a single entity for purposes of her projection of the number of banks she expects to link to the network. Helping to fuel interest in Secure Vault Payments among online merchants, she says, is the idea that, to the extent transactions can be routed through the payment network, they are not subject to the Payment Card Industry data-security standard, a set of security rules merchants have found onerous to comply with. “There is a keen awareness of the cost associated with PCI,” Carrier says. “To offer an alternative to that is very appealing.” She adds that prospective merchants have also responded well to Secure Vault Payments' limited list of reason codes for chargebacks. While credit card payments can be charged back by consumers who perform the transactions but later repudiate them (a maneuver sometimes called :”friendly fraud”), Secure Vault Payments allows chargebacks only in cases of actual fraud and so-called merchant non-performance, for example when goods shipped are not as advertised. Carrier says consumer repudiation accounts for between 50% and 70% of card chargebacks. “You're not going to have 'I didn't do it' chargebacks [with Secure Vault Payments],” she says. “Those chargebacks go away with this product.” In the Secure Vault Payments system, a consumer who chooses this option to pay at checkout is redirected to a log-in page for her online-banking program. After she authenticates herself, she is presented with a payment page summarizing the details of her purchase or bill payment. If she authorizes the transaction, she is directed back to the merchant's site and the switch instructs the merchant that it has good funds and can ship merchandise. The program levies an interchange rate of 1.35% on merchant payments and a flat fee of 50 cents on bill payments, payable by acquirers to authorizing banks (Digital Transactions News, Sept. 12, 2007).