October 28, 2004, 12:00 AM

New Payment Options

(Page 2 of 2)

The Bill Me Later model

The arrangement not only makes small merchants more competitive with large merchants, it also makes PayPal more competitive with other alternative payments services, such as I4 Commerce Inc.`s Bill Me Later service, which offers consumers instant credit at retail web sites. That service has quickly gained acceptance, with I4 Commerce reporting 25 merchants and travel sites offering Bill Me Later to shoppers, with an expectation of 15 more by Christmas. Bill Me Later has more than 500,000 consumer accounts.

Just as accepting PayPal brought incremental customers to Tiger Direct, so has Bill Me Later brought new customers to its retailers. At eToys Direct Inc.`s eToys.com, 7% of customers use the Bill Me Later option and 30% are new to eToys, Jim Scherman, vice president of business development and customer service, says. "We didn`t know what to expect going in, but we`re pleased," Scherman says. "The use has been significant."

For PayPal, the new services are just the start, Tilenius says. "Over the next three to six months we will be announcing new retail partners, new channel partners and new product suites," she says.

kurt@verticalwebmedia.com

A bump in the road

The timing was not exactly fortuitous: Just as PayPal was starting to ramp up efforts to attract merchants to accepting PayPal, it experienced a major crash. On Oct. 8, the PayPal payments server crashed after technicians implemented a code upgrade to back-end systems. Service was all but halted through most of the next week as technicians worked around the clock to solve the problem.

Thousands of payments were unable to be processed and that could have resulted in significant lost sales for merchants, says Scot Wingo, president of ChannelAdvisor Corp., which provides software and systems to retailers who sell on eBay. "Sellers can`t see that they`ve been paid and so they`re not shipping products," Wingo says. "That could result in negative feedback on eBay, which could be devastating to a business."

PayPal was quick to inform retailers and consumers that it was having problems, posting notices on its web site with updates and calling retailers. "They called us as soon as they knew there was an issue," says Lonny Paul, e-commerce director for electronics retailer Tiger Direct, which accepts PayPal.

PayPal also took the initiative in informing consumers about the problems and posted periodic updates on its web site from eBay CEO and president Meg Whitman, Matt Bannick, general manager of PayPal and senior vice president, global online payments for eBay, and Marty Abbott, senior vice president, technology for eBay.

The primary problem was that neither retailers nor consumers knew if their payments had gone through, Wingo says. And that caused disruption not just in payments but in retail call centers as well. "Our customer service department was going crazy because they can`t see into the account," Paul says.

By the following Thursday, things were pretty much back to normal, PayPal said.

However, the breakdown carries long-term implications for PayPal, Wingo says, because, PayPal`s debit accounts--which hold deposits from consumers and make funds available through a debit card--have also been affected. That means customers who use the PayPal debit card offline were unable to access their money. "With a stored value service, PayPal is a bank in a way," Wingo says. "But they`re not regulated like banks are. I wouldn`t be surprised to see some regulation proposed as a result of this. People are pretty upset."

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