Alternative Make Economic Sense for Ecommerce Merchants

The results of a new study by Brulant confirm that internet merchants are adding more options. Merchants who want to increase return on gross and net profit margins realize that accepting only credit cards limits company growth.

Alternative payment processors are offering incentives to encourage merchants to come aboard. They realize that once a payment option is integrated with the merchant’s site, it is highly unlikely that it will be removed. Merchants believe, and rightly so, that even if a few buyers use the payment option, results are more sales that otherwise would have been lost.

Electronic checks are becoming much more common. More than 10% of online merchants now offer the option of paying by electronic checks. Echecks are a form of . Payments are automatically deducted from the consumer’s direct deposit account.

Echecks typically have substantially lower processing fees for merchants than credit cards. And, the contingent liability with electronic checks for the merchants is much shorter than with credit cards. With credit cards a consumer can charge back up to 180 days. With electronic checks, the consumer has 60 days to initiate a revoke. And, for business ecehcks, the revoke period is only 3 days.

Other alternative payments are popular. Google check out offered 0 processing fees to entice merchant to add the payment option to the site. PayPal is is now seen on many sites. For merchants selling high ticket items, Billmelater, offers consumer additional lines of credit, and enables merchants to sell more..

For low ticket, digital content, subscription and download merchants, mobile billing is a good processing solution. Mobile billing gives merchant the opportunity to capture sales from those who do not have credit cards and is squarely aimed at the teenage market.

Mobile billing for is adapted by merchants because fees for micropayments eat up a substantial part of the profits for a merchant. For example, consider a micropayment of 3 dollars. By the time transaction and discount fees are added, merchants pay up to 15% for the transaction. And for even lower micropayments, the cost to merchants is exorbitant.

Not only are merchants starting to adopt new alternatives to -issued cards, some are adding several. A survey by Brulant in November showed five out of 100 e- commerce merchants are now accepting Bill Me Later, Google Checkout, and PayPal, the three leading payment alternatives. This is the first time Brulant has found any merchants accepting all three, Cohen says. Among the five are Toys ‘R’ Us, PetSmart, and Rite Aid.

Although factors such as consumer incentives, consumer trust, and impact on conversion rates play a role, offers of free processing seem to be making a marked difference in merchant adoption of alternative payments. Google Checkout, which processed transactions at no charge throughout 2007 in a program it now says will end Jan. 31 (Digital Transactions News, Dec. 12, 2007), saw its share among the merchants surveyed by Brulant double to 10% between February and November. Some 19% said they accept PayPal, compared to just 6% nine months earlier. PayPal in April announced it would process transactions on its Express Checkout service for free until the end of the year for merchants who also use Yahoo! Sponsored Search (Digital Transactions News, April 19, 2007). PayPal has since extended the cutoff date to June 30. Brulant’s survey did not distinguish Express Checkout, which streamlines payments on merchant sites, from regular PayPal service. Ordinarily, Express Checkout transactions cost merchants 1.9% plus 30 cents. Google Checkout’s normal pricing is 2% plus 20 cents.

The importance of free or steeply discounted processing is such that Google Checkout may see some fall-off in traffic growth when it restores its pricing at the end of the month, Cohen says. Google has not charged for Checkout transactions since November 2006, five months after the payment service went live. “It could hurt them, especially around signing up new merchants” Cohen says. “It has been very successful for them and it’s a very competitive market.”

Indeed, free processing may become hard for the processors to drop. “I don’t know if free processing is permanent, but right now to gain market share it’s absolutely an essential tool,” he notes.

Although in the lead at 21% of merchants surveyed by Brulant, Bill Me Later saw its share climb just four percentage points and now leads PayPal by just two points. The service, which allows consumers to buy online with credit, got a boost late last year when Amazon Inc. agreed to buy a minority stake in the processor and accept payments through it, further underscoring the increasing importance of alternative- payment methods for online commerce (Digital Transactions News, Dec. 11, 2007). Merchant-branded gift cards, meanwhile, were offered by 76% of surveyed retailers, according to Brulant.