Secure Vault Payments Launches As a Commercial Service

NACHA’s long-awaited Secure Vault Payments (SVP) program, which lets consumers make guaranteed payments online through the automated clearing house network, officially became a commercially available product on Thursday after a pilot that began in the spring of 2008. The new product can now be offered by any bank linked to the nearly ubiquitous ACH network to any online merchant or biller. “We’ve proven it works,” says Janet O. Estep, chief executive of NACHA, the Herndon, Va.-based organization that regulates the ACH on behalf of banks.

Estep says the official announcement of commercial availability reassures potential participants following an extended pilot period. “The word ‘pilot’ attached to something means it’s being tried out,” she says. “It has been a question of when will it be out of pilot. This gives those organizations certainty. [Secure Vault Payments] is here to stay, that’s really the message.”

While some industry observers might be interested in the pilot’s performance with respect to such metrics as transaction volumes, average tickets, conversion rates, or cart abandonment, Estep says the purpose of the pilot was “qualitative rather than quantitative,” aimed at proving systems like security and checkout rather than gathering numbers. Consumers, for example, were able to navigate from merchant or biller sites to their online-banking pages and back again without difficulty, she says. “Those participating have found the end-user experience very positive,” Estep says.

Nor has NACHA made any projections for the commercial service. Estep says this is because SVP is available to banks as an opt-in product, unlike other ACH applications that require all financial institutions on the network to accept transactions. That makes it difficult to predict levels of participation and transaction volumes, she says. “Businesses have clearly seen benefit in offering it as another payment type,” she notes.

Currently, more than 40 financial institutions are offering SVP, the largest being Synovus Financial Corp., a holding company for 30 banks in the Southeast. SVP is also available through processors like Fidelity National Information Systems Inc., Jacksonville, Fla. Banks can participate by offering the service to their account holders, or by sponsoring merchants or billers, or by doing both.

So far, SVP may have found a niche among colleges and universities (Digital Transactions News, Dec. 3, 2009). The University of Georgia, for example, uses it to collect tuition and fees online. The university says it prefers SVP to other ACH payments and checks because SVP payments are guaranteed. As of December, 16% of students with Synovus accounts were using the system, the university says.

When a consumer selects SVP at checkout, she is redirected to her online-banking program, where she enters her usual log-in credentials. She then finds a page summarizing her transaction, including merchandise details, biller or merchant name, amount due, and other information. If she wants to go ahead with the transaction, she authorizes it and is returned to the merchant or biller site. Bank authentication sets SVP apart from other ACH applications, including WEB, a fast-growing transaction code consumers use to pay bills online. Merchants don’t see or handle transaction data and receive good funds within a day or two.

Now that the service is commercial, NACHA and its technology partner, eWise Systems USA Inc., face a major marketing challenge, says Red Gillen, an analyst who follows e-commerce for Celent LLC, Boston. “Who’s going to market this?” he asks. “It takes money to go out there and create a critical mass for payments. When a payment scheme succeeds, it’s because they spend lots of money on marketing.” Denver-based eWise, a unit of an Australian software company, built and operates the switch for SVP and is working with NACHA to sell the product to banks and merchants.

One factor in the system’s favor is its pricing, which is favorable compared to fees merchants pay for most credit and debit card transactions. Acquiring banks pay consumer banks 1.35% on each merchant transaction, and 50 cents for bill payments. Both banks pay a switch fee of up to 6 cents. Hence, for a $75 e-commerce transaction, an acquiring bank pays $1.07, assuming a 6-cent switch fee. As with card transactions, acquirers pass these fees on to merchants and billers, typically with a markup.