How to Pay Less for Payments

Online retailers can reduce payment-processing costs in many ways, and more cost-saving options are coming. But more alternatives means it’s more important than ever for retailers to know how to play the game.

By Don Davis

Send me the bill

Bill Me Later is a little less expensive than credit cards for ShoeMall.com, says Internet director Jodi Bresina. But the big win has been in higher sales since the e-commerce site introduced the payment method in February. Bill Me Later accounted for 6% of transactions in March, those orders averaged 13% more than the site’s norm and 75% of Bill Me Later customers were new, Bresina says.

Bill Me Later also guarantees payment as long as the retailer verifies the billing address and fulfills the order, says Mullen of SureSource, which has accepted Bill Me Later for three years. However, Bill Me Later, which runs an instant credit check on a customer applying to use the service, declines more than a quarter of his customers, Mullen says. To keep from losing sales, Mullen says his sites present a message saying that Bill Me Later was unable to process the transaction; most customers then pay with credit cards.

Another deal for online merchants has been Google Inc.’s Google Checkout service, introduced two years ago. Google provided free processing on transactions until this year and now charges 2% plus 20 cents per transaction. But it’s still an attractive offer because Google will apply those transaction fees to a retailer’s spending on Google AdWords search page ads, crediting $1 for every $10 processed.

That persuaded Bellone to begin offering Google Checkout as a payment option this spring at CompSource.com. “They’re handing it to you on a silver platter, so you might as well use it,” he says.

One issue: Google only guarantees payment if the retailer obtains a signature upon delivery. Delivery services charge from $2.50 to $3.50 extra to guarantee a signature, and CompSource is passing that surcharge on to customers who pay with Google Checkout, Bellone says.

More to come

The payment options available to e-retailers have grown in recent years with the arrival of alternatives like Bill Me Later and Google Checkout and the entry into e-commerce processing of RBS Lynk, a subsidiary of Royal Bank of Scotland that is a significant e-commerce processor in Europe.

More payment alternatives are coming, including Bill Me Later testing the waters of offering its service to smaller retailers. It currently targets online merchants with at least $10 million in annual sales, but hopes to lower that threshold to either $1 million or $5 million by providing more automated service tools, Talbert says.

CardinalCommerce expects to offer this summer a payment method called eLayaway that lets consumers pay over time, receiving the goods once full payment is received. Merchants pay nothing, while consumers pay a fee of 1.9% of the purchase amount. About 700 mostly small retailers already offer the service, and eLayaway is hoping for greater acceptance once Cardinal offers the option to the 33,000 merchants that use its Centinel payment platform.

Online retailer Buy.com has been testing a new credit card called RevolutionCard, which only charges merchants 0.5% of the transaction amount, roughly a fourth of Visa and MasterCard rates. The company behind the card, Revolution LLC, backed by AOL founder Steve Case, is working on deals with payment processors that will make the payment option available to more online retailers in coming months, the company says.

There are more processors specialized in certain kinds of online payments, such as Vindicia, which focuses on payments for digital goods, such as music downloads, and on subscriptions and other recurring payments. One client is online art community and retailer DeviantArt.com, which gets 23 million unique visitors per month and sells a premium service starting at $4.95 per month that lets customers customize their home pages, browse without ads and add content, says Steve Gonzalez, vice president of business development.

In the past, DeviantArt.com did not offer customers the option of automatically renewing their subscriptions because it did not want to store credit card numbers and have to comply with card industry data security rules. Now Vindicia holds the card numbers and handles recurring billing, persuading the average customer to sign up for an additional two or three billing cycles, Gonzalez says. Vindicia charges a 2% fee on those renewals.

And a much larger new vendor could emerge if Chase Paymentech—a joint venture between the country’s largest card processor, First Data Corp., and major bank J.P. Morgan Chase & Co.—breaks up as a result of First Data’s sale last year to a private equity firm. That sale gives Chase the right to end the joint venture, which could result in First Data offering its own e-commerce payments service, says Mott, the consultant.

“This could be a once in a lifetime opportunity for merchants if First Data offers equivalent platform capabilities to Paymentech,” Mott says. “Imagine having two Paymentechs, one brand new and hungry for business.”

It’s by no means clear that scenario will play out. But it is clear that well-informed merchants already have plenty of options for reducing the cost of accepting payments, with more to come.

don@verticalwebmedia.com

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Bill Me Later, formerly I4 Commerce, provides payment solutions to merchants that make commerce more convenient, secure and profitable. The Company has strategic relationships with the industry’s largest payment processors, including Paymentech and First Data Corporation. I4 Commerce holds the patent pending rights to proprietary technology, information processing and payment processes used in conjunction with its flagship product offering; Bill Me Later®, a payment solution that gives consumers an alternative to credit cards. I4 Commerce’s strong management team, led by CEO, Gary Marino, has a proven track record of success at Citibank and First USA/Bank One.

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