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 (s AMZN) 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 (s V) 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.