A new way to pay: Noca's credit card alternative
When you buy a product online and use either a credit card or Paypal, a significant percentage of your transaction cost--from 2.5 percent to 4 percent when all the fees are considered--goes straight to either the credit card processing company or to PayPal. With so many retailers operating at such slim margins already, this is a material expense. While payment processing will probably never be free, a new company, Noca, is launching today that undercuts payment processing by an order of magnitude: It charges just 0.25 percent for transactions.
Noca, CEO PJ Gupta told me, does not enable credit of any sort. Rather, it's a financial interchange platform that lets consumers pay for goods through direct checking account withdrawals.
Gupta told me he was formerly in charge of Visa's network architecture, and that Noca is built in a more efficient way. "There's no reason to use IBM servers today," as the credit card processing companies do. "There are two to three order of magnitude of inefficiencies there."
He also says that Noca is more secure. Transactions are handled and encrypted by Noca's servers; merchants never see the checking account and bank routing numbers consumers enter (the same is true of PayPal transactions). An additional, adaptive security comes in to play depending on the type and amount of the transaction.
In a live demo where Gupta was buying $10 worth of digital goods from early Noca customer Klatcher, the system asked for a mobile phone number, sent a PIN to it, and required the user to enter that PIN on the transaction form. I didn't see how that added any security at all (the buyer could give out any mobile number), but Gupta told me that if the transaction had been for more money or for physical goods, the verification process might have incorporated Yodlee's system of challenging the buyer to produce personal information from financial records, such as selecting an accurate previous address or amount of the buyer's regular mortgage check.
To pay using Noca, get out your checkbook and copy down some numbers.
Gupta believes that the technology he's built to link into the banks, prevent fraud, and do so cheaply is a competitive barrier. But I am surprised that his customer roster at launch is sparse--only three vendors, and probably not one you've heard of. There are a dozen companies evaluating the system or getting closer to launching with it, Gupta says. There will be major vendors online with Noca, "well before June 30," he promised.
One downside: Noca doesn't offer chargeback or dispute arbitration services. That's between merchants and their customers. But it does give consumers far more detailed transaction statements than credit cards or bank accounts.
Noca is a smart company for the current economy. Credit is tight for everyone, including consumers, some of whom are losing or just throwing out their credit cards. Noca makes online purchasing easy and secure even without credit. And its lower fees could help make goods purchased online less expensive, too.
Rafe Needleman writes about start-ups, new technologies, and Web 2.0 products, as editor of CNET's Webware. E-mail Rafe. 
So in many instances, a buyer only needs to know a name and routing/account number?! The Nigerians are going to *love* this! At the very least, there should be an account verification process (similar to PayPal's) just to sign up. Otherwise, anyone who has ever received a check from you can go to town. And good luck trying to get your money back from the bank:
http://www.dfi.wa.gov/consumers/education/debit_faq.htm
"Under the EFTA, a bank has 10 business days to investigate the matter (20 business days if your account is new) and report back to you with its results. If the bank needs additional time, it may, under certain circumstances, temporarily give you some or all of the disputed amount until it finishes its investigation. Generally, a bank is allowed up to 45 days of additional investigation time (90 days for certain transactions). 'But until the dispute is resolved,' said Creamean, 'you should be prepared to pay your mortgage, car payment, credit card bill and any other obligations that may come due.' Also, she said, if the bank's investigation finds there was no error, theft or loss, it can take back the money it put into your account, after notifying you."
ACH regulations require account verification and thats the way Noca is doing it.
(Disclaimer: I am affiliated with Noca )
"SMS verification is only for digital goods and/or micro-transactions. For actual goods/services i.e. things that need to be shipped the users need to verify their bank account. This can be done either in real time or in batch mode using two micro-deposits. ACH regulations require account verification and thats the way Noca is doing it."
If ACH regulations require account verification, then why are digital goods and micro-transactions exempt? Is there some official cap? Regardless of the amount, not requiring hard-and-fast verification is a major mistake.
At the very least, it creates a trail. If it allowed any cell phone number, and someone who was not authorized gained access and entered the pin, you could track who (knows about) the payment... It might not get you a specific person (prepaid phone), but it will get something.
Yes, VERY high transactions ($2000 and up), but vendors wanting to manage fewer relationships and also not overwhelm customers have to take this into account. Oh, and wait . . . PayPal allows your customers to use credit cards, and this service doesn't.
Guess where I'm staying?
Jeff Yablon
<a href="http://www.answerguy.com">Virtual VIP</a>
Revolution offers FREE transactions. There are only fees for check withdrawals, check stop payments, paper statements, ACH returns, and overdrafts, but not for sending or receiving money.
- by c|net Reader March 7, 2009 8:15 AM PST
- Yet another company to breach, it would seem.
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