Interac Online is designed to provide an alternative to credit card payments over the Web by offering consumers the opportunity to pay for purchases via a direct debit from their bank account. Consumers do not provide any financial details, card numbers or login information to the online merchant, but instead are re-directed to their existing Web bank bill payment account to authorise payments direct.

The service mimics existing third party alternatives from non-bank tech firms such as Toronto's UseMyBank and Othentik Technologies of Montreal.

UseMyBank business development VP Brian Crozier says that on the eve of launching Interac Online, the Bank of Nova Scotia decided to close UseMyBank's biller account - following similar actions by CIBC and Toronto Dominion Bank last year. The banks cite fraud fears and concerns that UseMyBank is passing itself off as an authorised payments partner.

Crozier says the action will force UseMyBank to switch customers to more expensive e-mail money transfers. Customers forced down this route will incur a $1.50 bank charge each time they make a payment, while UseMyBank will be subject to a $2.50 charge, which will be passed onto consumers. Consumer's transaction costs will go from free or 50 cents a transaction to $4.00, an 800% increase.

"Many of Canada's largest and well known companies would have offered their customers UseMyBank years ago had it not been for the Canadian banks tactics and threats," says Crozier. "These actions have harmed UseMyBank, Canadian consumers and online sellers."

The issue is not confined to the Canadian banking community. Both UseMy Bank and Othentik are developing partnerships to export the technology to the European and US banking markets.