NACHA’s Web Payment Pilot to Start by Early ’07, Run 12 Months

NACHA's long-expected pilot project to test Internet payments to retailers and billers will get under way early next year and will run for 12 months, the Herndon, Va.-based organization said Monday. In a conference call it held to explain the new automated clearing house payment application and discuss the rationale for the pilot, NACHA officials said they expect to have signed up most participating banks, merchants, and billers by Aug. 30, though the pilot will accept additional participants after that date. NACHA, which establishes the operating rules governing ACH transactions, officially announced the new e-commerce payment type last month and launched a drive to recruit Internet retailers, billers, online brokerages, and originating and receiving banks for the pilot (Digital Transactions News, March 15). Interest in the project, which NACHA has had under consideration for some time under the provisional name “credit push,” is running high. Some 400 bankers and billers participated in the call, a number NACHA officials said was higher than they expected. Among other things, NACHA repeated its intention to set fees for pilot transactions resembling interchange fees as found in the credit card business, as reported last month by Digital Transactions News. “Interchange fees would be set just for this application,” Elliott C. McEntee, president and chief executive at NACHA, said during the call. “We would visualize the financial institution sponsoring the merchant or biller would compensate the financial institution pushing the payment [the consumer's bank].” In return, merchants and billers would receive guaranteed funds, with next-day settlement. Officials on the call also said they had not yet worked out in detail how to handle exception situations such as returns and split shipments. “How you would handle partial shipments requires additional work,” said Samantha Carrier, director of NACHA's e-commerce group. “It's on our list of things to study.” As envisioned by NACHA, the new application would allow consumers to make payments and transfer funds between accounts after logging in to their banks' online banking programs. In the system as currently designed, a consumer when ready to buy or make a payment on a Web site would click on a buy button that would automatically bring up a log-in screen for her online-banking program. Once authenticated, the consumer would then see a screen showing details of the transaction, including merchant name, items in the shopping cart, and price. Once she authorizes the sale, she returns automatically to the merchant's site. Merchants would receive instructions once the sale was authorized and could then ship the items. For the pilot, the association is looking for five originating financial institutions and at least 10 companies?including banks, billers, mutual funds, and merchants?to serve as payees. The pilot follows a technical test of the system NACHA conducted last summer in which several banks routed transactions through a network designed by eWise Systems, an Australian software firm that will also provide networking for the pilot. Participants in this so-called proof-of-concept test included National City Bank and Radio Shack Corp.'s e-commerce operation. NACHA's existing e-check application for Internet transactions, WEB, has been chiefly adopted for bill payments by companies with strong relationships with customers. The broader market for so-called spontaneous retail transactions has been difficult for WEB to penetrate because of its lack of an authentication method. But originating banks participating in the pilot will have to be capable of multifactor authentication in accordance with guidelines released last fall by the Federal Financial Institution Examining Council, NACHA officials said.