A Forrester Research report analyzes the early successes and failures of Apple’s mobile payments system.
It’s no secret that e-retailers are actively looking to add alternative forms of payment to their sites to expand their base of customers and reduce their payment acceptance costs. One of the more economical payment forms attracting the attention of e-retailers are e-checks, for which retailers pay a flat rate of about 55 cents compared to a percentage of the transaction, plus a transaction fee, for credit cards.
Besides lower acceptance costs, adding e-checks opens the door to purchases from consumers who are either unwilling to use a credit card for an online purchase or who do not have a card, but may be online researching purchases.
“Lowering payment acceptance costs and broadening payment acceptance to attract more customers are focal points for e-retailers,” says Jeff Thorness, president and CEO of payments processor ACH Direct Inc. “E-checks are a way to achieve both goals. Plus, e-checks are attracting a lot of interest from consumers that use them in stores and want to do so online.”
Despite the growing consumer interest in e-checks, many e-retailers are hesitant to add e-checks to their payments mix over concerns about fraud and checks being returned for non-sufficient funds.
In the case of fraud, the hard truth is that criminals may find it easier to attempt to defraud a retailer using an e-check than a credit card because there is no central database for authorizing an e-check, unlike there is for credit cards, Thorness says. “Many e-retailers have been slow to adopt e-checks because of some of the risks _surrounding them,” he says.
With no central database against which to authorize an e-check transaction it is up to the processor to provide such risk management tools. ACH Direct uses a proprietary database of more than 220 million demand deposit accounts that verifies the legitimacy of the account to be debited and whether sufficient funds exist to cover the purchase. In addition, ACH Direct has a database of individuals known to have written fraudulent checks or checks returned for non-sufficient funds.
“We are able to verify the status of a checking account on the same business day,” says Thorness. “A lot of e-retailers don’t have the risk management tools for e-checks. We can provide those tools.”
Managing the risk around e-check acceptance, however, is just one piece of the puzzle in implementing the alternative form of online payment. Once retailers add e-checks, they need to develop strategies to encourage shoppers to pay with them in lieu of credit cards. One option is to offer coupons that can be redeemed for future purchases. Another is to increase the number of loyalty points earned for purchases paid by e-check. “It’s important to give shoppers an incentive to pay by e-check,” Thorness says.
Reducing compliance costs
Still, a large percentage of shoppers will prefer to pay by credit card. While e-retailers can’t lower the interchange rates (what the merchant bank pays the issuing bank) set for these transactions, they can take steps to reduce the cost of compliance with security regulations to protect consumer data associated with credit card transactions.
For instance, ACH Direct can host a retailer’s checkout page through its payments gateway, which is certified to meet card industry security requirements, so that card data is entered and stored on its secure server. The service spares retailers the cost of having to meet the security requirements around credit card transaction data on their own. The gateway performs the same function for e-checks.
“Security compliance is a big issue and a lot of smaller and new e-retailers don’t always have the resources to immediately comply with card security regulations,” says Thorness. “Our gateway provides e-retailers a way to be in compliance and lowers the cost of compliance.”
Lastly, retailers need detailed reports on transaction volume to help them manage cash flow and understand purchase activity across all sales channels. ACH Direct enables retailers to create custom reports to track activity by such criteria as payment type and line of business.
“Multi-channel retailers have specific needs and it is important to have a processor that understands the security and risk management issues multi-channel retailers face, and that knows e-payments,” says Thorness. “We know the e-payments business.”