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
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
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
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
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