With U.S. Bank, Newly Commercial SVP Picks up Momentum

Secure Vault Payments (SVP), a method of e-commerce payment that relies on the automated clearing house, secured its first big-bank supporter on Wednesday with the announcement that U.S. Bank has agreed to offer the service to both consumer and merchant clients. The fifth largest bank in the country, the Minneapolis-based institution is the largest by far to adopt SVP, which NACHA, the regulatory body for the ACH, launched as a commercial service late this summer (Digital Transactions News, Sept. 16).

The bank plans to go fully operational on the system by the middle of next year. It expects client billers and merchants to spend the first quarter integrating SVP on their sites, while the bank takes the second quarter to prepare its consumer platform so account holders can make payments, Mary Burchette, senior vice president for treasury management product management at the bank, tells Digital Transactions News.

She declines to reveal projections for how many merchants and consumers it expects to have using SVP, but says U.S. Bank has heard from a number of businesses and consumers interested in adopting the service, even though it has not yet been widely advertised. Since SVP authenticates users, it offers merchants and billers guaranteed payments, unlike other ACH products. It also offers security-conscious consumers a way to pay online. Burchette says these features appeal most to merchants and users. “It gives [merchants] that same good-funds payment” as credit cards, while levying lower fees, she says.

So far, SVP has been in operation only among a handful of banks, billers, and online merchants, most of which were participants in a long pilot NACHA launched in the spring of 2008. The largest participating financial institution up to now has been Synovus Financial Corp., a holding company for 30 banks in the Southeast. Merchants in the network include iGourmet, Apple Vacations, Old World Limited, and the University of Georgia, which is using the system to collect tuition and fees online.

With SVP, consumers at checkout are directed to their online-banking program. When they log in, they find a page summarizing their transaction. Once they authorize payment, they return to the merchant’s page, the ACH transmits payment from the consumer’s account to the merchant’s account, and the merchant is notified that it can ship merchandise. Banks can participate as acquiring banks or as consumer banks, or as both. Acquirers pay 1.35% to consumer banks on each transaction, plus a switch fee of up to 6 cents (consumer banks pay a like switch fee). Bill payments cost 50 cents each.

Alex Grinberg, chief executive of Denver-based technology vendor eWise Systems USA Inc., which is performing switching services for the network and also running merchant and bank recruitment, says the signing of U.S. Bank signals the start of a major expansion for SVP. “This is a very important validation of the work and investment and strategy of NACHA and eWise and everybody who has participated [in SVP],” he says. With more banks committed and in the pipleline, he says, the consumer base will reach 10 million to 12 million within the next few months and will soar to 20 million to 25 million by the end of 2011, he tells Digital Transactions News. The current user count is “a fraction of that that right now,” he notes, without disclosing a number.

The deal with U.S. Bank “is a significant milestone—a top 10 bank is adopting [SVP]—but there’s still a lot of work to be done,” says Red Gillen, who follows electronic payments for Boston-based Celent LLC. The main job now, he says, is to get more banks onboard so that merchants and billers have an incentive to offer SVP as a payment option, he says. “There has to be a critical mass of banks,” he notes.

While U.S. Bank is connecting to SVP on its own, part of eWise’s strategy is to work through online-banking platforms that serve thousands of mid-size and smaller institutions, as well as gateways and resellers that process for multiple online merchants. Independent sales organizations, he says, “play a fundamental role” in that effort.

Gillen also questions how many banks will be willing to enable their customers to use SVP knowing they will earn less income on each transaction than they would have on a credit card. This could be an especially acute problem for big early adopters like U.S Bank, since most users will by definition be their own customers. Both Grinberg and Burchette concede this has been a concern but one that has largely dissipated. Indeed, Grinberg calls the concern “misplaced.”

Burchette says the bank has concluded that most SVP users are security-conscious people who eschew credit cards for online transactions, fearing the risk of data theft. “We did have a number of conversations on this internally, but as we looked at the type of consumer who would be using [SVP], we all agreed those aren’t the consumers who would be using a credit card today,” she says.