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NACHA’s Online Payments Pilot – The Next Generation of Online Payments

NACHA’s Online Payments Pilot – The Next Generation of Online Payments. Jaime Hill Director, Advanced Payment Solutions NACHA – The Electronic Payments Association. Agenda. Market Drivers The Solution Benefits Fees Status Implementation Approach Next Steps. Market Drivers.

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NACHA’s Online Payments Pilot – The Next Generation of Online Payments

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  1. NACHA’s Online Payments Pilot – The Next Generation of Online Payments Jaime Hill Director, Advanced Payment Solutions NACHA – The Electronic Payments Association

  2. Agenda • Market Drivers • The Solution • Benefits • Fees • Status • Implementation Approach • Next Steps

  3. Market Drivers Why a new Payment Product – and why now? • Security and privacy concerns • 50% of US Internet users avoid making purchases online, afraid financial information may be stolen (CyberSecurity Alliance Research 5/06) • Nearly half of consumers avoid online Bill Pay due to security concerns (comScore Networks, cited in American Banker 4/20/06) • Alternative online payments will account for 26% of eCommerce volume by 2009 (Celent, 5/06) • Continued fraud and charge backs • 6% of good sales lost due to fraud/risk screening (Cardline 2005) • Fraud is the top reason given for chargebacks on several networks (American Banker interviews with network executives, 1/17/06)

  4. Market Drivers Continued • State and Federal Agencies want payment options • High fees with existing payment options • Paper-based payments prevalent • Businesses want payment options • 72% of consumers surveyed say the have abandoned an online payment (CyberSecurity Study 5/06) • 23% of households do not have a credit card (US Treasury) • 45% of households within 5% of credit limit

  5. The Private, Secure, Bank-Authenticated Payments Solution • Using online banking to initiate Internet payments • Consumers keep financial information private – never disclosed to the seller/business/government • Seller/business/government receives real-time authorization of guaranteed payment (ACH Credit) • Financial Institution authenticates the consumer - reduces risk, fraud, and chargebacks • Relieves seller/business/government burden to secure/protect consumer financial information

  6. Stakeholder Benefits State Governments • Real-time authorization of a guaranteed payment (ACH Credit) • Increase use of electronic payments • Reduce costs • FI Authentication - reduces risk and fraud

  7. Stakeholder Benefits Consumers • Security and privacy – no financial information shared with the seller/business/government • Familiar user interface with online banking • More payment control and flexibility • Consumers are most comfortable sharing private financial information and account access with their Financial Institution

  8. NACHA’s Online Payments Pilot • Transactions that will be tested: consumer online purchase, bill payments and funds transfers • Why run a pilot? • Evaluate potential markets for new online payment type with privacy, security and guaranteed payment features • Evaluate level and structure of fees and impact on adoption • Determine costs, benefits and net economic benefit to all stakeholders

  9. Pilot Fees • Working with an economist to establish fees • Pilot fees will be finalized by end of March • General Pilot Fees • No registration fee to join/participate in the pilot • The consumer’s bank (ODFI) will be compensated for authorization and payment guarantee • Fees will vary by transaction type • Government transactions will be a flat fee • Bill pay transaction

  10. Timeline • Requirements document complete • Business, technical and security • Finalize Pilot Fees 3/07 • Product marketing plan 3/07 • Business and operating rules 4/07 • Pilot agreements signed 4/07 • Switch development & testing through Q2 07 • Rolling launch of the Pilot starts in Sept. 07 • Pilot run time 12-18 months

  11. Implementation Approach Objective: Control Risk • FIs and Businesses will be brought up slowly in a controlled and monitored environment • 1st FI to launch Q3 07 with 1-2 billers in their geography • Other FIs launch in Q4 • Billers (e.g., state governments) launch in Q3

  12. Implementation Continued • Merchants begin to launch in early 2008 • What will the Pilot look like at this time next year? • 3+ FIs • 8-10 key billers and merchants • Pilot will continue to grow throughout 2008

  13. Next Steps INTERESTED IN LEARNING MORE? Check out the Online Payments Pilot Website at www.paymentspilot.nacha.org Contact Jaime Hill at NACHA: jhill@nacha.org regarding pilot participation

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