As merchants continue to grumble over the cost of accepting credit card payments, momentum is gathering in the online payments space with services being launched that aim to offer merchants a cost-efficient alternative. Divya Guha speaks to two new players hoping to make their mark in a competitive industry.
The proliferating alternative payments markets recently welcomed two new offerings entering the fray of online card-free debit-based solutions, a market where the level of competition is already high and dominated by the likes of PayPal and Google Checkout.
California-based start-up Noca and Miami-based Mazooma are addressing the now-commonplace aversion of consumers and merchants to using credit cards for transactions.
A new take on things
Noca, founded by former Visa employees, offers enticing prices, almost eliminating merchant transaction fees by charging only 0.25 percent for payments routed via the automated clearing house (ACH) network.
Noca has launched a beta version of its payments system based on Secure Check, a debit system which processes in real time whereby merchants can immediately dispatch goods after payment and allow the consumer to print a receipt. It takes an hour to set up and does not require merchants to enrol.
It also allows the receipt of money directly from customers’ bank accounts with the payment processor taking away the liabilities associated with credit card transactions, which normally lie with merchants, but it does not offer any payment guarantee as such. However, Noca provides end-to-end encryption and stores all data at an off-site data centre that is certified Payment Card Industry (PCI) compliant.
The California-based company, which was founded in 2007, is funded by angel and group investors, including former PayPal executives.
“Noca amounts to an economic stimulus plan for online businesses,” said Pankaj Gupta, founder and CEO of Noca, who previously worked at Visa in roles including chief network architect and director of network security. “Exorbitant payment processing fees have been a pain for merchants offering goods that carry low margins or sell at low price points. Secure Check lets merchants increase their profit margins and free up cash. It also gives consumers the choice to pay for purchases in the same way they already pay their bills.”
Gupta says that in future they may also consider looking at Visa and rival MasterCard as potential partners, not as competitors, in business.
“We are a payment option that is an alternative to Visa and MasterCard. Bill payment networks are generally a way to present, store and pay bills. When paying they offer the payer a choice of Visa, MasterCard, American Express, Discover and so on. We are an additional choice.”
Taking a different approach
Mazooma, in contrast, allows consumers to use their online banking accounts to pay merchants by authorising a transfer from their current accounts to a holding account maintained by Mazooma.
To use Mazooma, consumers at check-out click on a Mazooma button with the tag line: “Would you like to pay directly from your bank account?” First-time users are asked to fill in five fields of information, including name, address, and date of birth, and to create a password. After that, Mazooma handles the log-in to consumer accounts in the background and returns a confirmation to the consumer and merchant.
Merchants must integrate Mazooma into their systems, a process which can take five hours or more for some merchants. Once the system is in place, consumers are briefly redirected to Mazooma’s servers but believe they are on the merchant site throughout the session.
The company wires payments to merchants, with next-day settlement. The transaction is authenticated by the online banking system used by the consumer, but Mazooma does not offer a funds guarantee to the merchant.
“It’s extremely difficult for the consumer to repudiate [these transactions],” a Mazooma spokesperson told CI. “It’s not guaranteed, but it’s as close as possible without being guaranteed.”
The fee to the merchant starts at 1 percent for high-volume retailers and goes up from there. A merchant in the range of $30 million to $40 million in annual sales would pay about 1.5 percent plus $0.20, a spokesperson said.
Mazooma charges 1 percent to 1.75 percent per transaction and a fee of $0.10 to $0.20. Mazooma is almost entirely focused on the US retail market – but could leverage their lack of formal ties to banks and multi-jurisdictional strategy to look for business overseas in the UK, Canada and China.
As for Noca, the company is confident that it can continue to gain traction, says Gupta: “We have hundreds of merchants already signed up with accounts and all this with zero sales efforts.”
Noca takes only hours to set up which is an obvious attraction to merchants – but helping Mazooma is its inclusion in the widely used Centinel platform managed by CardinalCommerce, which offers a number of alternative payment and online authentication products, which are card-free.
Both entrants agree that changing the attitudes of card-centric consumers online is tough, and recognise that the earliest stages will be challenging. But whether such debit-based options will mean the return of cash, or the erosion of card usage, remains to be seen. However, they claim to have been getting healthy merchant attention, and know payments for the volume game it is.
Gupta, is realistic: “There is an existing demographic that wants a credit card alternative – both for security and also simply as an easy alternative to paying using bank accounts,” he told CI. “Given that the payments space is so large, we don’t need 100 percent of the demographic using us. We are happy to be a choice for some of the users. Even if we only get 20 percent of the users to start with, our model is viable.”
Mazooma does not see Noca as much of a threat, according to vice-president Paul Phillipson: “Although we respect Noca as a company and competitor, we have not yet seen their product providing anything new to the market. Noca appears to be an ACH solution with some account verification and as such it will have the same security challenges ACH solutions have always had. Although we have been following their launch closely, we would appreciate any new insight or perspective on the Noca solution.”