redit cards are the most popular form of payment for Web purchases. Depending on who's doing the guesstimating, 80-90% of online purchases (certainly all consumer-initiated Internet sales) are completed by credit card. It's a situation based largely on perception: Consumers perceive credit cards as relatively risk free because of the liability limits for fraudulent or disputed transactions. Merchants buy into it because credit cards enjoy mass consumer appeal.

Now, two years into the era of the post-Internet bubble, NACHA has a plan for a new Internet payment, a transaction it calls ACTION. It seems to me this plan is too little too late to have broad-based appeal, and from the conversations I've had with others, I don't think alone.

Project ACTION (for ACH Credits Initiated Online) was launched by NACHA in the spring of 2001, when the Internet bubble already was a bit frayed around the edges, to carve a place for the ACH in the Internet payments space.

Nearly a year and a half later, I had practically forgotten the project existed until I received a press release this fall announcing that NACHA's board of directors (all representatives of banks and bank associations) had approved a "proof of concept" phase for the project. Translation: NACHA is building a prototype Internet payment system that uses the ACH in lieu of card-based accounts.

NACHA says it will form a limited liability company to build ACTION and recruit financial institutions as owners of the corporation.

I don't get it. The hold banks have on the payments space these days is tenuous at best. Why would bankers want to further fragment the market by creating a new payment system?

NACHA offers several reasons, but none is too convincing. Consumers and businesses want more privacy and security when buying online, and banks are a trusted party, explains NACHA. Businesses would benefit from real-time payment guarantees; ACH credits are irrevocable and generally settle in a day or two. And banks would get to tap into a new source of interchange and related revenues, which could total $1 billion the fifth year out, by NACHA's reckoning.

"ACTION puts the financial institution's brand at the center of its customers' e-commerce transactions and is a new income opportunity for depository financial institutions of any type and size," says Charles Bretz, the Compass Bank Senior Vice President who chaired the first phase of Project ACTION.

What differentiates ACTION from other payment models, NACHA explains, is that buyers using this option on the Internet would initiate payment via their own financial institution - it's called a "credit-push" payment model. Consumers choosing ACTION instead of a credit card button at an Internet checkout select their financial institution from a drop-down menu that links them to the financial institution's Web site.

The financial institution then authenticates the buyer and asks to confirm the payment amount. Once the amount is confirmed, the financial institution sends a guaranteed ACH credit payment to the seller's bank along with notification to the seller that the payment is forthcoming.

In theory, it sounds logical. Just about every financial institution in the country is linked to the ACH, so it shouldn't be difficult routing payments. Trouble is, participation in ACTION is voluntary, so there's no guarantee that online buyers selecting this payment option will be able to find their bank on the drop-down menu.

There always will be at least some banks that choose not to participate in ACTION, for whatever reasons. So if NACHA and its bank sponsors were to pursue this course, it could be perceived as an effort to bias consumers toward dealing with an "elite" set of banks. And what if all banks were to participate? Well, considering the thousands of financial institutions that serve folks in this country, buyers might be overwhelmed by the selection process.

More to the point, though, ACH payments have a rather limited adoption curve (remember e-checks?), and the NACHA rulemaking process poses huge obstacles to reversing that trend.

It's been five years since Internet storefronts began converting in-store shoppers to online buyers, and credit cards have made significant inroads during those years despite some security and privacy compromises. For NACHA to come along now with a new option seems an unnecessary duplication of industry resources.

Folks I've talked with who have looked at the Project ACTION business case estimate it will take at least five years before anyone sees a dime of revenues from the project, and that's under the best of circumstances. In today's market, with companies under pressure to produce nearly instantaneous revenue streams, five years is simply too long to wait for a new trickle of fee income, especially if there's an upfront investment required.

According to published reports, the cost of rolling out Project ACTION could total $8 million. That, of course, doesn't include costs associated with reengineering, product development, training, etc. that would be necessary on the individual participating-bank level.

Don't get me wrong; it's not that I don't think there's a place for ACH payments on the Internet. I just don't think banks should squander capital on yet another Internet payment system that competes with payment systems they already operate, such as the debit and credit card systems.

I also find it curious that the Federal Reserve is not involved in Project ACTION. While NACHA has done much to promote and expand the ACH, the fact is that the ACH would not be what it is today - a payment system handling billions of consumer and business transactions a year - had the Fed not spent decades subsidizing it with low-cost processing services.

Bankers like to make a lot of noise about getting the Fed out of the business of competing for payments, but the plain fact is that had the Fed not subsidized it for all those years, the ACH might never have evolved to the point it's at now - a payment system that handles in excess of 6 billion electronic transactions a year.

If it's more privacy and security that banks (and their customers) are looking for in Internet payments, they should take a look at what SVPCo is doing through its Electronic Payments Network (EPN) operation. SVPCo is a bank-owned company with ties to the New York Clearing House. EPN processes ACH transactions in competition with the Fed and handles roughly one out of every three ACH transactions in the country.

Earlier this year, EPN rolled out a program called UPIC (for universal payment identification code). UPICs, assigned to e-commerce participants by their banks, function like a check-routing and transit number (masking confidential account numbers) and accompany payment instructions as they are routed over the Internet.

This is certainly much more logical than creating a new payment product from scratch.

(Editor's note: As this issue went to press, published reports indicated that NACHA has put Project ACTION on hold indefinitely.)

Patti Murphy is Contributing Editor of The Green Sheet and President of The Takoma Group. She can be reached at patti@greensheet.com