US electronic payments association Nacha is to build a new bank-owned utility charged with solving the privacy, security and authentication issues relating to retail internet payments.
The board of directors of Nacha has approved moving to the next phase of Project Action (ACH Credit Transactions Initiated Online), to build and test a bank-centric Internet payment system. Under this phase, Nacha plans to form a limited liability corporation, recruit financial institution owners of the corporation, issue a request for proposals, build the Action infrastructure, and conduct live transactions.
"The financial institution members of Project Action determined that it makes sense to pursue a proof-of-concept phase," says Steve Ellis, executive vice president of Wells Fargo, who chaired Action's financial institutions committee.
He says the members of Project Action have completed a business case that estimates new banking industry revenue of $1 billion in its 5th year of operation from Internet payment and authentication products and services.
Charles Bretz, SVP of Compass Bank, who chaired Phase 1 of the project, comments: "The Action business case shows that financial institutions can make money by providing value-added Internet-based payment and authentication services to their deposit customers."
Mark Havlik, a senior vice president at Wachovia, says privacy and security are the primary concerns of consumers and businesses that currently do not conduct transactions on the Internet. He says: "Project Action could provide a banking-industry solution for payment privacy and customer authentication on the Internet."
A key feature of Action is that a consumer or a business would initiate a payment on the Internet via its own financial institution, instead of providing financial information to a merchant or biller and authorising a debit to its account. This is also known as a "credit-push" payment model.
Financial institutions would expcetd to gain new revenue by providing Internet merchants and billers with customer authentication and real-time payment guarantees.
James Van Dyke, principal and founder of Javelin Strategy and Research, states: "Financial institutions already have the ability to authenticate their customers online, and should be considered a viable alternative to the authentication solutions being proposed by technology companies."