After a Delay, NACHA Unveils Interchange, Other Pricing for SVP

NACHA-The Electronic Payments Association on Wednesday unveiled pricing for a pilot program it will launch early next year to test automated clearing house payments made by consumers to online merchants and billers, with payments authorized by online-banking programs. For e-commerce merchants, the fees, which will include a straight 1.35% levy on purchases, payable to authorizing banks by merchant banks, appear to stack up competitively against online debit card payments as well as against other alternative payment systems. As with other payment products, however, much depends on how much merchant banks mark up the network-determined fees before passing them on to merchants. The new program, called Secure Vault Payments (SVP), has been under development at NACHA for at least three years. George Throckmorton, senior director for payment solutions technology at NACHA, now expects it will be several more months before the 18-month SVP pilot gets under way. “We hope to have the first transaction live by the end of the year, but first quarter of '08 is more realistic,” he says. At least one bank?Synovus Financial Corp.?has agreed to participate. Throckmorton says other banks, and some billers and merchants, which he cannot yet name, have also said they will be in the pilot. “As a matter of fact, there are more billers than merchants” so far, he says. A key feature of the pilot is the fees participating banks, merchants, and billers will pay and, in some cases, receive. NACHA originally expected to announce pricing for SVP in May (Digital Transactions News, May 2), but establishing the fee schedule took longer than expected. Particularly important, says Throckmorton, was balancing the interests of authorizing banks, merchant banks, merchants, billers, the network switch, and NACHA itself so that all players saw an incentive to participate. “We consulted with economic experts and industry participants in the U.S.,” he says. “We spent an exorbitant amount of time [on this]. You've got to get the pricing right.” The pilot, he says, will help NACHA determine whether, and to what extent, the pilot pricing needs to be adjusted. Herndon, Va.-based NACHA establishes the rules by which banks and processors handle ACH transactions. In addition to the 1.35% interchange fee, SVP will include a negotiable switch fee of 6 cents maximum per transaction, paid by both authorizing and merchant banks, as well as an administrative fee to NACHA of 2 cents, split evenly between the two banks in each transaction. In SVP, authorizing banks allow consumers to use online-banking programs to authenticate themselves and authorize payment to online merchants and billers. Merchant banks are authorized to sign up merchants and billers for SVP. To guard against trivial fees for micropayments, the interchange fee for purchases cannot fall below 10 cents in any case, Throckmorton says. Unlike online purchases, bill payments will carry a flat 50-cent interchange fee, with payments to government agencies getting a dime discount to 40 cents. In this structure, authorizing banks will effectively collect $1.28 on each $100 online purchase, since they will receive $1.35 from the merchant bank but must pay up to 7 cents in fees to the switch, operated by an Australian software company called eWise Systems Inc., and to NACHA. As in credit and debit card networks, the fee actually paid by merchants and billers will be determined by the merchant banks. Unlike most credit and signature debit rates in the bank card networks, SVP interchange carries no flat-fee component with the percentage rate, which can make for less expensive transactions for merchants. By comparison, for example, signature debit card transactions conducted on the Web carry interchange of 1.6% plus 15 cents each in the Visa USA network, though Visa offers a special hotel and car-rental e-commerce rate of 1.36% plus 15 cents. Other alternative payment networks also levy fixed fees in addition to percentage rates. PayPal's lowest rate, for example, is 1.9% plus 30 cents. Google Checkout is free for the time being but will charge 2% plus 20 cents starting Jan. 1. And the best rate for the new Amazon Flexible Payments program, offered by the giant online retailer, is 1.5% plus a penny.