Paying to online merchants via your bank?
In the last couple of weeks, there have been a few announcements in the US and the UK about new ways to pay for e-commerce goods – via your online bank account.
They both promote a payment method, which takes the customer from an online merchant site to the customer’s online banking site, from which the customer can make a payment to the merchant. The attraction to the customer is that they don’t have to disclose the card details and they are safe in the knowledge that their payment has been authenticated by their bank. The merchant receives a guaranteed payment and in return pays a processing fee, which is shared between the payment provider and the bank.
Such payments are reasonably well established outside of the US and UK – iDeal in the Netherlands and giropay in Germany are just two very popular examples. So, surely, the US and the UK must be ripe for these types of payments?
I am not so sure though. I think these solutions will face a two-fold challenge:
1. Consumer adoption. Both the US and the UK have well established card markets, both debit and credit. Add PayPal into the mix and the consumer has a decent range of payment options online. Will they trust another unknown brand, even if it’s backed up by their bank? Just as some might be reluctant to enter the card details online, will they find it equally unnerving to type in their online banking credentials based on a link generated by an unknown online merchant? And will they find the whole process more convenient than paying by card? I doubt it…
2. Bank adoption. iDeal succeeded because the Dutch domestic debit card (PIN) had zero interchange and most of the cards could not be used online. Here, the new providers will have to convince the banks that it’s a good idea to cannibalise their card interchange fees for an alternative revenue source. Having said that, in the post-Frank-Dodd act world, these alternative revenues might actually be quite attractive.
I would love to hear your thoughts on this. What do you think about payments online and specifically these new products?