Herndon, Va. - The Electronic Payments Association will organize a pilot to test online transactions in which consumers would be authenticated by their own financial institutions, and initiate private, secure electronic payments via their financial institutions' online banking web sites. NACHA's Board of Directors recently approved the test for consumers' online funds transfers, bill payments, and purchases.
"Research continues to show that privacy and security are the primary concerns of consumers that do not conduct transactions on the Internet," said Elliott C. McEntee, President and Chief Executive Officer of NACHA. "By enabling financial information to remain private between these consumers and their financial institutions, whole new markets of consumer transactions could be conducted online."
"As a result of the recent FFIEC guidance on authentication, financial institutions will be making their ability to authenticate their customers online more robust," said Rick Burke, Vice Chairman of NACHA's Board of Directors, and Senior Vice President of Commerce Bank in Cherry Hill, New Jersey. "The NACHA Board decided that the time is right to look at this capability as a business opportunity instead of just as an additional expense."
In the pilot, a consumer would choose to complete an online transaction at a web site using this authentication and payment method. The consumer would then be re-directed via a secure network to her financial institution's online banking web site, where she would log in using existing log-in procedures. Once securely within the financial institution's web site, the consumer would confirm the details of the transaction and authorize payment.
Because the consumer would authorize payment via her own financial institution, she does not provide her financial account information to the business or a third-party; it remains private between her and her financial institution. Because the business does not receive and store her financial account information, it does not have the responsibility of securing the information from mishandling, misuse or theft.
"Financial institutions have already invested heavily in secure online banking systems," said Charles Bretz, a Director on NACHA's Board, and Senior Vice President of Compass Bank. "NACHA's pilot constitutes a modest investment in networking these systems, so that financial institutions can leverage their investments into new products and services."
NACHA's objectives in organizing the pilot are to: 1) evaluate the potential markets of new online transactions enabled by the privacy and other features; 2) evaluate the structure and level of fees that would best result in adoption by all participant categories; and, 3) determine the costs, benefits and net economic impact to participants.
The pilot comes on the heels of a successful proof-of-concept phase, which demonstrated that the process for a round-trip transaction works well and quickly, and that users found it easy to use. The network provider for the proof-of-concept, eWise Systems, will also serve as the network provider for the pilot test.
"The proof-of-concept phase showed us that financial institutions can play the central role in new online authentication and payment solutions," said Arthur Markos, a NACHA Director and President of Gardiner Savings Institution, which was part of proof-of-concept team. "Gardiner's customers already trust us. We want to explore how that existing trust can enable our customers to conduct more of their business online."
In addition to organizing the pilot, NACHA will also be developing business cases for bank-provided online authentication and payments in the business-to-business market, and for bank-provided online authentication as a stand-alone service.
NACHA will be accepting businesses, government agencies, and financial institutions to participate in the pilot. Parties interested in participating may contact Samantha Carrier of NACHA at scarrier@nacha.org. NACHA will also host an industry Town Hall teleconference on April 10. Registration information will be posted on www.nacha.org.
NACHA is also hosting an industry conference on financial institutions' business opportunities inherent in the recent FFIEC guidance on multi-factor authentication. The conference – Authentication Mandate: Compliance Issues & Revenue Opportunities for Online Banking – will be held June 6-7, 2006 in Reston, Va.
Conference details are available at http://www.nacha.org/conferences/AuthMandate_2006/default.htm.
