I am intrigued by last week's announcement from UK payment processor VocaLink and Australian financial software vendor eWise that they are collaborating to build an online banking transfer payment system for the UK. Online banking transfer systems make it (fairly) easy for online shoppers to authorize payments through online banking by integrating the payment details into their bank's secure online banking site. The customer is routed directly from the merchant's site to the bank to authorize the payment and back again.
In the Netherlands, the iDEAL online banking transfer system has been highly successful. It's now used by some 10 million Dutch online shoppers for about 5 million transactions a month. But the UK's online shopping market is different to the Dutch one in a couple of important ways. Firstly, debit cards can be used to pay online in the UK. Since almost all adults have a debit card, paying online is not a big problem in the UK, unlike many other European markets. Secondly, UK Net users have always been relatively complacent about online security compared with other Europeans. That means that one of the primary attributes of an online banking transfer system — more robust security — may not cut that much ice with British online shoppers.
Forrester has long argued that any new payment system needs to overcome three hurdles to succeed: providing a clear improvement over the existing alternatives, driving consumer and merchant adoption, and developing a viable business model for all parties.
Customers will only be able to use a new system like this if their bank offers it. Although the development costs would not be huge, the banks won't prioritize this unless there's a clear business case, or they are much more frightened of PayPal than we think they are.
So I have two big questions:
Firstly, how many UK online shoppers really need an alternative to either card payments or PayPal? Most of the previous UK online payment alternatives like Google Checkout have essentially worked in much the same way as PayPal, providing some kind of secure third-party online wallet that stores a customer's payment details. An online banking transfer system provides something different, but will enough shoppers think it is better? How many people will choose the rigmarole of signing in to online banking for the sake of a transaction that may (appear to) be more secure than either a card payment or PayPal?
Secondly, how much do the big UK online merchants like Tesco, Argos, DSG international and easyJet need or want to offer their customers another way to pay? An online banking transfer system would presumably be cheaper for merchants than credit-card interchange fees. If retail eBusiness executives believe they can either attract substantial incremental sales or significantly lower the payment costs of their online sales, they are likely to adopt the new system.
If consumers and the big merchants really want this, the business case will start to add up for the banks.