Payment Systems: New Ideas for How to Get Paid by Customers
U.S. etailers are beginning to understand that the payment system they choose for collecting money from customers is more than just a mundane back-office function. In fact, payment systems are becoming an important strategic marketing tool.
In the U.S., payment has traditionally been managed through bank credit card systems, such as VISA, MasterCard and American Express. And these providers still support 81% of U.S. ecommerce today, taking fees of around 3 % of the sale in the process.
But etailers are exploring other options, intended to reduce fees, increase customer satisfaction and gain access to new prospective customers.
New options are making headway
PayPal. The first “alternative†payment system was PayPal, now owned by eBay. But with 25% of the market, according to Jupiter’s 2007 holiday survey, PayPal is now becoming mainstream, appreciated by etailers and customers alike for its convenience and security features. PayPal’s fee structure, around 2.2% of the sale plus 30 cents per transaction. According to Jupiter’s survey, 53% of etailers intend to offer PayPal in 2008.
Google Checkout
With only 3% of the market, Google’s payment system is still in its infancy. But, these days, no one is willing to count out a new offering from the monolithic Google. According to First Annapolis Consulting, already 20% of online merchants offer Google Checkout as an option for customers.
Google Checkout’s fees are competitive, at 2% plus 20 cents per transaction, but here’s the kicker: etailers can apply these fees as a 10% credit against their usage of Google Adwords pay-per-click search engine marketing campaigns. One issue that etailer’s don’t appreciate: Google only pays when the merchandise is physically signed for by the customer, a process that can add as much as $2.50 or $3.00 to delivery expenses.
Bill Me Later
Deferred billing solution Bill Me Later charges between 1.5% to 3%, plus 15 cents, averaging about .7% less than credit card fees. Currently the service is only available to merchants selling $10 million or more annually, although Bill Me Later plans to extend the service to smaller merchants later this year.
Here’s how it works: At checkout, if a customer clicks on the Bill Me Later button, the company asks for the birth date and last 4 digits of the customer’s Social Security number, and runs an instant credit check. If the customer qualifies, then Bill Me Later presents an invoice via email a few days later, and the customer can pay by bank debit card or by check.
Unqualified customers are rejected—one retailer reported as much as a 25% reject rate—at which point the merchant can substitute a credit card option. Bill Me Later claims that their customers are better quality than average, delivering 75% higher average order sizes and up to 40% higher purchase frequency.
Think global
Since the Internet provides global market reach, many etailers are selecting payment systems that support multiple currencies, making it easy to do business beyond U.S. borders. Solutions like Netgiro and Chase’s Paymentech are examples of globally minded options in use today.
Go back to cash
A new payment service from CardinalCommerce called eLayaway allows consumers to pay over time by installments, and are charged a fee of 1.9% of the transaction. Participating merchants pay no transaction percentage, but do pay a $349 flat annual membership fee to be able to offer the option. About 700 small etailers are offering the service already. Consumers can use an online calculator to choose their preferred payment plan, like larger installment payments over a shorter period or small payments stretched out over a longer time.
Other experiments
- AOL founder Steve Case has launched a new RevolutionCard credit card, which carries a merchant fee of only .5%–a quarter of what most credit card companies charge today.
- Vindicia is a payment processor specializing in recurring payments like subscriptions.
- Mobile payment options like Bill2Phone and MPayy, which allow consumers to pay for their online purchases through their mobile phone bills or via credit or debit cards.
The field is wide open, as etailers seek ways to improve security and convenience for customers.