February 10, 2009, 12:00 AM

New payment system lets online shoppers pay directly from bank accounts

Mazooma informs the e-retailer immediately whether the consumer has enough funds to cover the purchase. The system is designed to appeal to consumers without available credit, and offers merchants fees that are typically below credit card rates.


A new payment system called Mazooma that launched today enables online shoppers to pay directly from their bank accounts, seeking to appeal to consumers who lack credit or don’t want to add to their credit card debt.

“These days, people are looking for a responsible way to pay, and we provide a practical method for doing that,” says Sean Kelly, president of Mazooma.

Several merchants have been testing the system for the past year, and the company plans to work with merchant acquirers to expand the acceptance base. As part of its formal launch today, Mazooma announced that e-commerce payment provider CardinalCommerce will offer Mazooma to its 30,000 merchant clients. Kelly says more such deals will be announced in the next few months.

To pay with Mazooma, a consumer would choose that option on a merchant’s checkout page and, if not already registered, provide five pieces of personal information to sign up with Mazooma. She then selects her bank from a drop-down menu, enters her online banking user name and password and is presented with the amount of the purchase and an approval button. If she approves, she directs the bank to pay the merchant. Kelly says Mazooma does not store the shopper’s bank ID or password, and the transaction is encrypted to prevent that information from being misused. Once registered, a shopper would enter a Mazooma user name and ID, then proceed to sign in to her bank account.

Assuming the shopper has enough money in her bank account, Mazooma informs the merchant that the transaction has been authorized. While Mazooma does not guarantee the merchant payment, Kelly says there is a small likelihood that the transaction would not go through if the consumer had sufficient funds at the time of approval.

BowlingBall.com is one of the online retailers that has been offering Mazooma as a payment option since last summer, but only a handful of customers have used it, says John Congdon, chief information officer. He says Mazooma will have to offer incentives for consumers to try the system, as Google did when it introduced Google Checkout a few years ago, for the new system to succeed. Kelly says Mazooma does plan to work with merchants on offering incentives to consumers to get them to give Mazooma a try.

Kelly says Mazooma will cost merchants typically about half the fees of accepting credit cards. Fees are tiered by volume, and a merchant with annual sales of $25-30 million might pay 1.5% plus 20 cents, while a large merchant might pay 1% and little if any per-transaction fee. Rates would be higher for smaller merchants, he says.

Mazooma figures to appeal to the growing number of consumers who want to pay with funds on hand, as opposed to with credit cards, says Bruce Cundiff, director of payments research and consulting at Javelin Strategy & Research. But Mazooma must convince consumers that it’s safe to enter their online banking information. “That’s a big, big, big perception hurdle,” Cundiff says.

Kelly recognizes that it will be important to win consumers’ trust. “Part of the challenge for Mazooma is communicating this simple truth to consumers-we neither capture nor store their online banking credentials,” he says.

Ed Kountz, a payments analyst with research and consulting firm Forrester Research, says he likes Mazooma’s tag line: “Just like paying with cash. Online.” But he says Mazooma will be competing with a number of similar payment services that draw on consumers’ bank funds, and will need significant merchant adoption to succeed.

Among the similar services is eBillme, which allows consumers to pay an online retailer through their online banking system, as though they were paying a bill. Mazooma’s advantage, Kelly says, is that it gives the retailer an immediate approval, whereas with eBillme the merchant cannot be sure the consumer has paid until the shopper’s bank sends the payment.

Another payment system that draws on consumers’ current funds is Secure Vault Payments, which is being tested by NACHA, the organization that oversees the interbank automated clearinghouse system. Kelly says this system requires a formal integration with each bank’s system. Mazooma does not require any cooperation with the bank, as it merely mimics the process of a consumer signing on to her online bank account and authorizing a funds transfer. Mazooma currently can handle purchases from 14 banks that represent 70% of U.S. bank accounts, and more banks will be added, Kelly says.


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