September 27, 2007, 12:00 AM

Alternative payment options can lower risk

Some payment options can reduce the risks associated with fraud and chargebacks. Bill Me Later, for instance, assumes those risks once it has approved a transaction.

Alternative payment options like Bill Me Later, PayPal and Google Checkout can reduce the risks online retailers face from fraud and chargebacks.

For instance, Bill Me Later assumes those risks once it has approved a transaction. As a result, Overstock.com, No. 25 in the Internet Retailer Top 500 Guide, does not assign risk-management personnel to check those transactions, saving the online retailer 20 to 50 basis points per transaction, says Alan Johnson, director of payments.

Google assumes responsibility on 98% of Google Checkout purchases, Google says. If Google flags a transaction as risky, and declines to assume responsibility, the retailer has the option of taking the risk or rejecting the transaction.

“When we do get that flag, we’ll go a few steps further, call the customer and do our own risk assessment,” says John Congdon, chief information officer at bowlingball.com. He says he’s had to deal with only about a half dozen chargebacks on Google Checkout transactions out of roughly 20,000 in the past year. Another online retailer, PlumberSurplus.com, reports a chargeback rate of less than 0.1% on Google Checkout transactions. But Ryan Douglas, online marketing team leader, notes the site, which sells plumbing supplies, experiences little fraud in general.

PayPal, a venerable online payment system with an eight-year history and 153 million accountholders, takes advantage of the accumulated data about PayPal users to assess the risk of a transaction. PayPal says its fraud rate is less than 0.5%.

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