NACHA announced Monday at its PAYMENTS 2001 conference that it is launching a project that would enable consumers and businesses to make secure payments for Internet transactions. Called Project ACTION — ACH Credit Transactions Initiated Online — the program will develop a payment method for Internet consumer-to-business, business-to-business, and electronic bill payment transactions utilizing Automated Clearing House (ACH) credits.
“An advantage of the ACH Network is the ability to process credit payments, in which funds are pushed to sellers or other payment recipients,” said Elliott C. McEntee, President and Chief Executive Officer of NACHA. “For example, ACH credits have been in use for more than 25 years for Direct Deposit, and in 2000 were used more than 3 billion times to make Direct Deposit payments to 100 million people. Currently, other payment methods require account information to be provided to sellers, that then attempt to authenticate the buyer and pull funds from buyers’ accounts.”
How ACTION Works
The key difference between ACTION and other electronic payment methods is that a buyer (a consumer or business) would initiate a payment to a seller via its own financial institution, rather than authorizing the seller to debit its account. This feature enhances security of payments while reducing many of the risks.
With ACTION, a buyer visits a seller’s web site, decides to make a purchase (or pay a bill) and chooses ACTION as the payment method. The buyer selects its financial institution from a drop-down menu, and is linked to its financial institution’s web site. The financial institution authenticates the buyer, perhaps through an existing Internet banking platform, and asks the buyer to authorize the payment. The financial institution then verifies the buyer’s account balance and initiates a guaranteed ACH credit payment to the seller’s financial institution.
“ACTION brings security and privacy to payments for Internet transactions because consumers and businesses will be able to initiate payments directly from their financial institutions, rather than providing account information to a seller or a third-party,” said McEntee. “Consumers and businesses have existing, trusted relationships with their financial institutions, whereas they may be uncomfortable providing account information on the Internet to sellers or service-providers. Many financial institutions are already able to authenticate their customers online through Internet banking platforms or similar methods. ACTION leverages that existing ability into new authentication and payments business opportunities online.”
Benefits of the ACTION Payment Model
ACTION provides financial institutions the ability to serve as a payments portal for individual and corporate customers. ACTION is an opportunity for banks to build authentication and guaranteed payment services into their payments processing business. Financial institutions can leverage existing authentication methods and information technology investment to support ACTION.
Sellers benefit from receiving guaranteed payments from buyers’ financial institutions, which reduces the risk of returned payments. The risk of fraud is lower because the responsibility for authenticating buyers is shifted from sellers to the buyers’ financial institutions, where trusted relationships with buyers already exist. ACTION provides sellers the opportunity to offer a secure payment option that allows buyers to pay directly from their checking accounts.
Buyers benefit from the ability to keep their financial and payment information private from sellers that perhaps were previously unknown to them. Buyers can utilize a method to pay directly from checking or savings accounts with existing funds.
Project ACTION will be operated as an independent membership program within NACHA. Members will develop the business plans and requirements, product design, technology requirements, and a brand identity. Membership is open to all payments industry stakeholders. The first meeting of the Project ACTION membership will take place May 15-16 in Reston, Virginia. For membership information, visit the Project ACTION web site at [http://www.project-action.org] , or contact Julie Hedlund, Senior Director of Electronic Commerce, NACHA, at 703-561-3915 or [email protected]
The ACH Network
The ACH Network serves 20,000 financial institutions, 3 million businesses, and 100 million individuals. The ACH Network is commonly used for Direct Deposit of payroll and government benefits such as Social Security, Direct Payment of consumer bills, business-to-business payments, federal tax payments, and, increasingly, e-commerce and international payments. In 2000 there were almost 6.9 billion ACH payments made worth more than $20.3 trillion.
About NACHA – The Electronic Payments Association
NACHA is the leading organization in developing electronic solutions to improve the payments system. NACHA represents more than 12,000 financial institutions through direct memberships and a network of regional payments associations, and 600 organizations through its six industry councils. NACHA develops operating rules and business practices for the Automated Clearing House (ACH) Network and for electronic payments in the areas of Internet commerce, electronic bill payment and presentment (EBPP), financial electronic data interchange (EDI), international payments, electronic checks, and electronic benefits transfer (EBT). Visit NACHA on the Internet at [http://www.nacha.org].