Why Synovus Is Optimistic About NACHA’s Secure Vault Payments

Unlike its experience with online bill payment, Synovus Financial Corp. expects ultimately to generate significant revenue from a new Internet payments system based on the automated clearing house for which a 12-to-18-month pilot will start by October. Exactly how much revenue, however, may depend on the pilot itself, as well as on pricing yet to be announced. “We do have a model showing there is money to be made,” says Garry Hedges, director for planning and payments strategy at Columbus, Ga.-based Synovus, a holding company for 39 banks. “The model shows there is positive revenue to be had across the spectrum based on price points I can't go into because they're not final yet.” Like most banks, Synovus offers online bill payment at no charge to users, and so sees relatively little revenue from the online consumer channel currently. The new online payments product, called Secure Vault Payments, will allow bank customers to pay online merchants for spontaneous purchases as well as pay bills. In a parallel to the credit card business, banks that sponsor merchants into the program will pay interchange fees to so-called authenticating banks, the institutions that manage the online-banking programs that verify consumers' identities. Synovus will be the first authenticating bank in the pilot, with more expected to come on board early next year. NACHA-The Electronic Payments Association, the Herndon, Va.-based rules-setting body for the ACH, expects to release pricing details this month (Digital Transactions News, May 2). Pricing will include switch fees and “governance” fees to NACHA, both of which will be split between authenticating and sponsoring banks. Synovus's model presupposes that the bank will also sponsor merchants. As do acquiring institutions in the card business, sponsoring institutions will pass on interchange for Secure Vault Payments transactions to merchants, almost certainly with a markup. Hedges says all of the banking company's 39 banks will likely participate. Hedges sees promise for Secure Vault Payments in the rising popularity of WEB, the current ACH e-check application that lets consumers make Internet payments. Because it lacks authentication, WEB has been used primarily for bill payments. “Anybody accustomed to paying by the WEB channel is a candidate [to use Secure Vault Payments],” he says. WEB transactions grew 36% last year to 1.37 billion, according to NACHA, whose figures don't include on-us transactions. WEB traffic now accounts for 11% of all ACH volume. But the new product could have benefits for merchants, as well, that go beyond handing them an alternative to credit cards for online sales. Hedges says that since no personally identifiable data flow to the merchant, Secure Vault Payments could be attractive to merchants struggling with the Payment Card Industry data-security standard, which mandates rules for data protection. With Secure Vault Payments, a consumer when ready to check out at a merchant site will be redirected to his bank's online-banking program. He will log in as he normally would, but then would see a page with details of his purchase. After authorizing payment, he will return to the merchant site. In this way, merchants don't collect information that could be used by data thieves. “It reduces the burden [merchants] are under with PCI,” Hedges says, to the extent Secure Vault Payments transactions replace card payments.