12 Comments

Summary:

The current downturn is likely to be a tipping point for e-commerce, as thrifty buyers search for bargains on the web. We saw early signs of this trend recently when Amazon reported great sales performance for the holiday season — quite the opposite of its brick-and-mortar […]

The current downturn is likely to be a tipping point for e-commerce, as thrifty buyers search for bargains on the web. We saw early signs of this trend recently when Amazon reported great sales performance for the holiday season — quite the opposite of its brick-and-mortar peers’ experience. As online commerce gets more competitive, merchants are going to be looking to find ways to lower their costs.

Noca, a 2-year-old startup based Mountain View, Calif., started by former Visa executives, hopes to do this by offering a brand new online payment platform that essentially attacks the “processing fees” associated with credit card payments. Taking on the entire credit card establishment and other payment platforms such as PayPal is an incredibly brave move for a tiny startup.

Pankaj Gupta, CEO of Noca, says online merchants typically pay processing fees between 2 and 3 percent of revenue. “With total profit margins typically 3-4 percent this 2-3 percent becomes a huge problem (almost 50 percent of profit is going away in processing),” he says.

Noca avoids credit card processing fees by letting consumers use their bank account information to send money directly to merchants via “secure checks.” It’s not the only site to offer this approach — PayPal and other sites also allow customers to use their bank account information. Noca’s secure encryption technology seems to be its main pitch to potential customers. Even if that helps differentiate it from other e-check payments, I’m not sure that’s going to be enough.

I can see the appeal of using Noca for low-cost purchases like music, but I’m not sure consumers will be able to overcome the habit of buy-now-pay-later mentality that is encouraged by credit card companies.  In this down economy, many will be looking to stretch their dollars by using credit cards.

  1. A slight mistake: a large portion of online payments are today done using a debit card, over 30%, so customers are not so credit oriented as we use to think….all other issues are correct, risk is still there because the risk is not on the account number but on repudiation and fraud…still possible as with all other ach based solution and sometimes even at higher rates than with credit cards…

    Share
  2. Perhaps it is exactly in this economy that people will learn to appreciate that delaying payment doesn’t really “stretch your dollars”. Once you have pre-consumed next month’s income, either you mortgage future income, paying credit card rates of interest (15-30%/annum here in UK) – so reducing your total spending over time – or you keep within your means.

    Here in the UK we already use debit cards – linked directly to your bank account – quite extensively. A minority of websites offer better terms for debit cards – though this depends on the terms merchants can get from the bank – which likely has a share in Visa and/or Mastercard anyway.

    Of course, any serious competition for the credit card processors should help to reduce those outrageous charges…

    Share
  3. VISA reported excellent results last week, has a $42 billion mkt cap, and stunning margins. A retailer in this environment must seethe at those numbers. Those MasterCard is smaller, the picture is much the same.

    I know its not cheap to establish/maintain a global payment network that functions 24/7. However that’s a tough sell to a merchant looking to cut costs.

    Share
  4. Payment providers who’s main benefit is cost will not succeed. Anyone selling will tell you that selling more is more important than saving a few BPs on payment processing.

    Share
  5. Based on what i’ve read, they’re not PP competitors yet. Not enough of an advantage over PP.

    Share
  6. Click the security seal. It comes up invalid. Look at the bad grammar on the site. Look at all the invalid links.

    Looks like a scam site to this merchant.

    No way will I be giving them my company bank account info. No way.

    Share
  7. Published at http://people20.blogspot.com/2008/09/ebillme-business-model-enhancements.html
    Wrote :With recent trends in the economy of helping consumers save money on their purchases as well as maximize their savings, personal finance and internet bill payment together can offer consumers huge advantages if the following enhancements are made by companies like eBillmelater, Mint, paypal etc:
    a) Offer advantage over credit cards : Customer Purchase prices should be lower by say 2-3% (credit cards can charge 2-3% of purchase price as fees, to merchant) for consumer, and merchant will also thus get lower revenues (which they do anyway, while using credit card too). This is similar to a “cash back rebate”, but it is upfront in saving consumers money, and would be a VERY BIG PLUS, and customer base will grow exponentially.
    …………

    Share
  8. Published at http://people20.blogspot.com/2008/09/ebillme-business-model-enhancements.html
    …..
    b) Ability to link my other checking/savings accounts : for example, if I have a Noca/paypal account, I would like to be able to link all my savings accounts at various banks, and my various credit cards there. And if I make a purchase, then paypal should deduct funds from the LOWEST APR savings account (thereby maximizing the interest that the customer collects), and if I am buying on credit, then paypal should charge that credit card of mine, that charges the LOWEST APR or HIGHEST REWARDS credit card. This helps the consumer manage all his finances AUTOMATICALLY.

    Share
  9. People are crazy to use a debit card for online payments; if that card number falls into the wrong hands, your entire bank account is at risk. Debit cards aren’t nearly as secure as most credit cards.
    -Jack

    Share
  10. Hi Om,

    Would it be possible for you to help some people as a lot of them are facing problems because Paypal is not depositing their money into their respective banks accounts for 19th feb 2009….if you could write something on you blog it would be really nice….I am one of the victims of paypal..for more please see here…http://forums.digitalpoint.com/showthread.php?t=1244685

    thanks

    Share

Comments have been disabled for this post