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New payment options
E-checks are gaining traction for web-based purchases.
There’s no doubt that electronic checks have not caught on for payment of retail goods on the web. Only 0.3%-that’s 3 out of every 1,000 orders-of Internet-based retail purchases are paid by check-either electronic or by check mailed post-order, reports BizRate.com Inc.
But that’s not stopping some payments processors from roping off their territory now. When e-checks catch on, they say, adoption will be swift and a whole new category of consumer will come online. “Several major online retailers like Amazon are evaluating and investigating electronic checks. When the majors start doing it, there will be an enormous rush,” says David Kerlin, president and CEO of Portland, Ore.-based AmeriNet Inc., which markets the Debit-It e-check product to Internet retailers, retailers with call centers and DRTV merchants.
Credit cards have been the coin of the realm on the Internet and almost nobody expects checks will ever displace credit cards. But processors like Kerlin point out that some surveys show that up to 40% of the U.S. adult population does not have credit cards or are at the limit on their credit cards and so are ready for another form of payment on the web. Further, many consumers believe that paying by check is safer than paying by credit card.
As a result of untapped demand by consumers for check payments, retailers experience a lift in sales of as much as 15% when they start to accept e-checks, Kerlin says. “This is a way they can increase their revenue with absolutely no additional investment,” he says.
A significant boost
Entertainment and retail web site operator eUniverse Inc. experienced a 10% increase in sales as soon as it started accepting AmeriNet’s e-checks nine months ago. “It was a significant boost,” says Scott Mertz, vice president of e-commerce transactions. EUniverse operates over 100 of what the company calls “diversionary” entertainment sites, including FitnessHeaven.com, CupidJunction.com and Flowgo.com. The sites cater to someone seeking a brief diversion who will come to a site to be entertained; users do not come to the sites on their way to doing something else, as they do with Yahoo or other portals.
As part of its offerings, eUniverse began selling merchandise and now sells mostly small electronics at 12 e-commerce sites. Based on analysis of purchases and cart abandonment before it began accepting e-checks and after, eUniverse determined that at least 5% of cart abandonment was the result of the customer not having or not wanting to use a credit card. In addition, eUniverse believes there is a significant base of customers who are uncomfortable providing their credit card information over the Internet.
In addition to boosting sales, e-checks may have the benefit of creating more loyal customers. The jury is still out on who uses e-checks and which segment of a retail site’s customer base they represent. But while eUniverse hasn’t drilled into its user base to find out who the check users are, Mertz believes that acceptance of e-checks has made check-using customers more loyal. “My feeling is that these customers are subprime and underserved because they don’t have a credit card or they are maxed out on their credit cards,” Mertz says. “So because we accept checks and because they are so easy to use, those customers are more likely to become repeat customers.”
In most cases, accepting electronic checks costs merchants no more than accepting credit cards. Discount rates on guaranteed check payments are generally in the range of discount rates for credit cards-typically 2-6%, depending on the merchant and the goods the merchant sells. AmeriNet authorizes transactions through online payment processor/authorization services, such as Certegy Check Services Inc. and Telecheck International Inc.
Online retailers can save even more by opting not to have the check service guarantee the payment-Debit-It’s discount on non-guaranteed transactions is half its rate on guaranteed. In that case, the merchant holds the order until AmeriNet receives payment from the consumer. Then AmeriNet sends a message to the merchant’s fulfillment operation giving the OK to ship.
Make it easy
One of the keys to increasing use of electronic checks for online purchases is to make the check payment process like the credit card process, Kerlin says. “It’s got to be as easy as possible,” he says. To meet that qualification, the Debit-It system asks only for customer’s name, bank name and numbers at the bottom of the check. “We don’t ask the customer to figure out which number is the routing number, which is the bank number and which is the account number,” Kerlin says. “They just key in all the numbers at the bottom of the check, left to right, and the intelligence in our system figures it out.”
Kerlin says AmeriNet came to that insight in its early days when it was providing check services to retail call centers. “There are a lot of training issues at call centers, because of the turnover,” he says. “And we listened to a lot of calls and people got confused easily as the call center reps tried to tell them what numbers they wanted and then read them back to them.”
Another key to wider use would be to market the service to consumers. But Kerlin acknowledges that neither
AmeriNet nor merchants have the money to undertake a mass marketing campaign. Still, Kerlin believes that retailers could undertake some simple marketing efforts like highlighting on their home page that check payment is an option.
Almost no fraud