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After a series of fits of starts, alternative payment methods that allow cash to be used for payment over the Internet are gaining momentum, freeing online retailers from the constraint of having to accept only credit cards for online payment. “Merchants need to offer more than one form payment to consumers, just as they do in the physical world,” says Christina Kasica, a senior consultant at Ovum Inc., Boston.
Transferring funds from their checking account or credit card to a third party, such as Flooz.com or PayPal.com, which holds the money, typically sets up an alternative payment account. When the consumer makes an online transaction, the third party transfers payment to the seller’s account, which can be set up instantly if they lack one.
A key benefit of alternative payment for merchants is that it can generate incremental sales from youths that previously needed their parent’s credit card to shop online. “Alternative payments get kids into the Internet economy by giving them a way to pay without a credit card,” says Joseph Marino, an Internet commerce analyst for Current Analysis, Inc. “It builds customer loyalty with an important audience.”
Alternative payments also spare online retailers from paying credit card interchange on small-ticket purchases, such as a CD cut, which sells for less than $2. “Accepting credit cards for micro payments does not make sense,” adds Kasica.
Online retailers also are exploring digital gift certificates as another alternative payment. Spiegel, Inc. is developing a digital gift certificate for consumers, for which they will eventually will be able to reload funds.
Spiegel currently markets digital gift certificates to businesses as an employee perk. “Gift certificates pass along affinity for a store to a non-customer,” says Scott Weiler, director of business development for Spiegel Direct. “They are great for repeat business.”