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.
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.