Expansion of the crowded US alternative online payments market continues relentlessly with the launch of new services from start-ups Noca and Mazooma. Adding to the competitive landscape, Amazon has gone live with Amazon Flexible Payments (FPS), a platform enabling online retailers to offer a range of payment options.
In keeping with online payment giant PayPal, these new services and other fledglings such as Moneta, eBillMe and the National Automated Clearing House Association’s (NACHA) Secure Vault Payments (SVP), offer consumers and online retailers payments which don’t involve credit or debit cards.
Payments are made through a web-initiated transfer direct from shoppers’ bank accounts to e-merchants via the US automated clearing house (ACH) network, internet banking bill payments or from an online stored-value account which can be topped up with a debit/credit card or a bank account transfer. The advantage is that, unlike with card payments, e-merchants never see shoppers’ information.
Noca and Mazooma hope to take advantage of the current economic climate in which US consumers are changing from over-reliance on credit cards to a spend-what-you-have mentality. While Noca has opted for web-initiated ACH transfers for its Secure Check service, Mazooma (a US slang term for cash) gets shoppers to make bill payments to merchants via their internet banking account. Secure Check requires consumers to fill out the digital equivalent of a paper cheque.
“We have been live with a small number of merchants since mid-2008,” Mazooma president Sean Kelly told EPI. “Merchants taking payment via Mazooma receive instant notification of completed transactions. This allows them to fulfil and ship orders immediately.”
Mazooma is focusing on acquirers and payment service providers that have existing relationships with thousands of merchants, Kelly explained. The service is available on Cardinal Commerce’s Cardinal Centinel processing platform, along with MasterCard and Visa cards, PayPal, NACHA SVP, eBay’s transactional credit provider BillMeLater and eCheck. According to Kelly, Cardinal Centinel is used by 30,000 US e-merchants.
Noca, however, has yet to announce which processing platforms it will be available on.
“Noca is hoping to act as its own acquirer, rather than partnering with processors such as CardinalCommerce,” George Peabody, director of emerging technology at Mercator Advisory Group told EPI. “CardinalCommerce has done a good job of aggregating multiple payment platforms for e-merchants, so it can give customers a wide range of choices of how to pay.”
Big challenge ahead
Peabody said for Noca and Mazooma, the big challenge will be getting merchants and shoppers to sign up. Taking market share away from PayPal will be hard, he stressed.
Noca was founded by Pankaj Gupta, a long-time Visa executive who most recently handled network security at Visa USA. Distinguishing Noca’s offering is its ultra-low-cost fee structure – a flat rate of 0.25 percent of transaction value.
Last year, Noca piloted its micro-payments platform on two Facebook applications, OneClickPay and HelpYourWorld.
“We started on Facebook as we wanted to get some user experience feedback before we built the full version of our system,” said Gupta. “We tested our system on micro-payments because those are low risk.”
Gupta added that, following Noca’s launch in February 2008, the number of merchants signed up for its platform has risen from a double-digit number to triple-digits. Clients include Klatcher, a digital content supplier, and clubsetup, a young people’s sports website.
“We tell merchants that our fee is almost zero, and there are no extra fees or start-up charges,” Gupta said. “This really undercuts PayPal’s merchant pricing.”
The standard fee charged by US acquirers for an e-merchant to accept credit cards is 2 to 3 percent of the transactional value plus a $0.30 flat fee per transaction.
“Noca’s almost zero fee is definitely a strong argument with merchants, and it warrants their consideration,” commented Bruce Cundiff, director of payments research and consulting at Javelin Strategy & Research. “It is not the only merchant consideration, however. Merchants are most interested in providing the type of payment consumers want to use, and they don’t want the method of payment to in any way impede closing the sale.”
Adding competitive pressure, Amazon went live with its Amazon FPS in February 2009. Amazon FPS, previously available in beta form, allows e-commerce websites to offer a range of payment methods on Amazon’s processing platform including credit/debit cards, balance transfers from shoppers’ Amazon Payments accounts and ACH debits from bank accounts. Amazon sees micro-payments as an important FPS application.
With active account users approaching 90 million, Amazon has the advantage of size. Smaller players, however, have a far tougher task ahead.
“Consumer buy-in will be hard to achieve for [firms such as] Noca,” said Avivah Litan, a Gartner Research analyst. “But right now there is a strong need for a viable, low-cost payment mechanism in micro-payments. For example, the newspaper business needs it [micro-payments] in order to survive! So I think one or more of these firms has a shot if they can get a few large electronic content or services businesses to adopt them.”
How Noca’s Secure Check works
On a Noca-enabled merchant’s checkout page, the customer selects ‘bank account’ as the payment method.
While still at the merchant’s site, the customer is presented with an online cheque with the payment amount pre-filled.
As well as completing the fields for name, address and cheque number, the customer provides their email address and the bank account and routing numbers found at the bottom of a physical cheque issued by their bank;
After submitting the online cheque to complete payment, Noca emails the customer with a link to a portal at Noca to view transaction details.