July 2008 - Channel Crossing: Alternative Payment

Looking at Alternative Payment Options

By Theodore Svoronos

In general, it’s important that alternative payment methodologies be made available for click-and-mortar businesses that want to cater to customers who are not comfortable with using credit cards or debit cards online. Giving the people other methods to purchase products and services will minimize customer drop off and help curb online consumers’ concerns about security, identity theft and fraud.

When looking to offer an alternative payment product, you must consider ease-of-use, reach and most importantly, the security features. A system that has proactive identity theft and fraud features built into it is key. Also, keeping rules and regulations in mind, KYC (know your customer) rules and regulations are very important, as the enrollment process in these programs must be secure. The question you should ask yourself is: Will I be able to identify the individual participating in this alternative payment program properly?

Authentication and validation of the individual is a priority because you need to know who is accessing this alternative payment program and purchasing from the merchant and if that customer is using his or her true and available payment methodologies to do so. This would also help in fighting chargebacks and mitigating risk. What’s more, it will help the merchant stay in good standing with their processor, minimize financial risk and help them grow in confidence.

E-tailers have quite a few choices out there regarding alternative payment methods. There’s a lot to consider when adding this type of financial instrument as a method of accepting payment. Do your homework, look at the ROI for the program and to your business, try to gauge how much more business you can gain by offering this program and from which demographic. Also, look at the time of day that this may increase your sales, see if it increases your average ticket size and/or volume and lastly, if it minimizes the abandonment rate at the shopping cart.

Following are four examples of what is available today. I believe soon there will be more types of alternative payment methods made available to retailers.

Approximately 100 million Internet users use Pay Pal to send money to each other via e-mail. PayPal is an online financial transaction broker that allows individuals to pass money back and forth through their e-mail addresses. It is very similar to a suspense account or escrow account. The buyer and the seller both trust PayPal with their financial information and personal information, yet PayPal keeps this information in confidence and no one can see the other person’s financial information. When using the PayPal methodology, the financial transaction broker does not charge the buyer any fees but only charges the seller about 2 to 3 percent for receiving funds for items sold.

In essence if someone is looking to sell a product through the PayPal methodology, he or she puts the product up for sale and if within the PayPal network someone wants to purchase that particular product, the buyer and seller enter into an agreement of exchange of products for payment. The buyer’s credentials and financial capabilities are checked and the seller’s information is also verified to the best of their ability and then the exchange takes place in the form of an escrow account. This means that the money is placed in the escrow account and once accounted for and deemed to be in good standing, the product is then released. This does not happen quickly but if you’re willing to wait 24 to 72 hours on average for this procedure, the methodology works well.

PayPal has some security measures in place to mitigate fraud and potential risk but as with most alternative payment processes, they can always be made tighter and more effective.

Bill me later is basically a credit account offered through CIT Bank in Utah. The consumer has to apply for this and be accepted pending credit approval. This program is one that a merchant must enroll and participate in, and therefore, be accepted in the network. If the merchant does not accept Bill me later as a payment methodology, then a customer cannot use it. Basically, consumers shop now and pay up to six months later. I think this would work well for consumers who may not have the funds available or choose to pay for items at a later date. They also have something called zero fraud liability protection, which means that the consumer is not responsible for any unauthorized charges. This program is also incentive-based driven such as free shipping offers, purchasing discounts and exclusive offers as added bonuses for using this system.

This transaction process works on purchasing ad words as a marketing campaign. For example, if you spend $100 in ad words the previous month, you can process $1,000 in sales at no cost to the merchant. The cost is incurred when the retailer purchases the ad words, and there are no additional costs incurred for the actual processing of transactions. Anybody who uses Google’s checkout process uses a user ID and password so that individual can buy from you easily. Though this is a payment methodology, the underlying tone for this is still advertising and marketing strategies. Google does have chargeback resolution capabilities and it looks for fraudulent transactions through filters. Since no credit card information is passed and you have determined that you can fulfill this order, all you do is click a button labeled “charge this order” and the transaction takes place.

Lastly, is eBillMe. This enrollment-based program has participating merchants and enables consumers to add it as a payee on their online banking page from their bank. Thus, the consumer actually purchases using online banking.

Bolstering consumer confidence and making the experience easy and secure are keys in the further adoption and longevity of Internet commerce. Catering to bankable and non-bankable alike will also increase sales and circulation of dollars in our economy. E wallets, V wallets and mobile commerce will also expand the ability for a consumer to purchase virtually, easily and securely, and therefore, add another revenue generating opportunity for the e-tailers that can work for them 24/7.

In essence, always offer choice to the consumer as long as the payment methodology is not cumbersome, easy to use and secure and can cater to all levels of financial capability. This gives everyone an opportunity and the ability to be a consumer in the e-commerce world.

Theodore Svoronos is CEC and CEF of Group ISO Inc. He can be reached at [email protected].


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