National City, Radio Shack Get Set for Technical Test of Credit Push

An operational test of a system by which consumers could instruct their banks to pay online merchants and billers is set to take place in July, according to NACHA, the Herndon, Va.-based rule-setting association for the automated clearing house that is sponsoring the test. Participants so far include Radio Shack Corp., National City Corp., and software vendor eWise Systems. Three other financial institutions?Wells Fargo, Bank of America, and Gardiner Savings Institution–have also signed up for the test and are expected to recruit an online merchant. The so-called proof-of-concept test, which will run throughout the month and will rely on the automated clearing house to settle payments, will include focus-group studies with online merchants and billers. Association staff hopes to have a recommendation before the NACHA board by November on whether to proceed with further work on the new payment method. The payment concept, which NACHA provisionally refers to as “credit push,” has excited considerable interest among online merchants and banks since NACHA's decision six months ago to conduct a technical test (Digital Transactions News, Sept. 30, 2004). Internet merchants have long sought a less expensive alternative to credit cards for taking payments, and many are attracted to the ACH because of its low-cost clearing. NACHA has an existing ACH payment type for the Internet, called WEB, but it has mainly attracted billers rather than so-called spontaneous retailing sites because of its lack of strong authentication. With credit push, consumers use the Web to issue instructions to their banks to send payments to online merchants for goods they've bought online. Authentication of the consumer is the responsibility of the bank. For the test, Australian software company eWise Systems has designed a closed-loop model featuring an eWise gateway in which a consumer who is ready to pay and who chooses the credit push method will choose her bank and then be redirected to that bank's online-banking site, where a log-in page will ask for a user name and password, and possibly other authentication. The banking site will then present a page populated with data about the transaction, including the name of the retailer or biller and the amount of the payment. Once the consumer gives authorization, she will return to the merchant's site to complete the checkout. Provided funds are available, the merchant will receive a message relaying the authorization from the bank so goods can be shipped. Funds to the merchant clear the next day and are guaranteed by the authenticating bank. Although user name and password are standard authentication at most online banking sites, eWise chief executive Alexander Grinberg says the system will support any authentication method a bank chooses. “It's predicated on bullet-proof security,” he told an audience attending a session on credit push this week at a NACHA conference in San Antonio, Texas. In the July test, some 25 employees of each participating bank will act as buyers, peppering replicas of the participating merchants' sites with transactions and testing the system's ability to handle exceptional cases, such as returns. Preliminary transaction routing that National City has conducted so far has indicated that the transitions between merchant and bank sites should move rapidly and smoothly, Mary Ann Francis, senior vice president at the bank, told the audience. “It's actually way faster [than a credit card transaction],” she said. “It's four or five strokes of a key.” Populated fields help speed up transaction time, she said. For its part, Radio Shack is participating in the test because it sees an opportunity to offer customers an alternative payment channel that at the same time requires no confidential information from customers and offers the electronics retailer guaranteed funds. “Not having to give banking information [online] is a big benefit,” said Raymond C. Vines, director of treasury operations, during the NACHA presentation. “Banks will do the authentication, so we don't have to worry about it, and customers are comfortable with their banks.” The proof of concept, he said, will give the merchant data that will help it decide whether the new payment method should be included in a revamped site it is building. Although issues such as pricing of the service are outside the scope of the technical test, Vines cautioned that should NACHA ultimately go ahead with credit push, banks will have to shoulder the burden of explaining the new payment method to customers and will also have to be careful in how they price it. With authentication services added in, banks may find they need to price credit push higher than typical ACH transactions, which usually run in the pennies. “If banks can't price it for us to want to use the payment method, we won't buy it,” said Vines. “It's going to have to be competitive.”