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Understanding the elements of a sound payment strategy and developing and implementing this strategy can take up to nine months. Retailers that rush through the process can lose sales and have higher acceptance costs.
“Payment service providers are taking a more consultative approach because retailers need to understand the true cost of acceptance and the risks associated with their payment strategy before implementing it, and they aren’t always aware of possible pitfalls,” says Manten. “Retailers need experienced payment service partners to guide them through the global payment landscape and show them how to conquer it on a local level.”
Cash makes headway into e-retailing
Less than five years ago e-retailers had only a few payment options to offer customers, usually credit cards, e-checks and PayPal. With e-retailers reaching a wider range of customer demographics, consumers are demanding more payment options.
In many cases, the choices coming to market are closer to cash than they are credit or checks and in some cases have been created to help retailers serve consumers who do not have credit cards but that do have an online bank account or access to a bill pay portal.
“As the number of consumers without credit cards shopping online expands, a shift is occurring toward retailers offering cash,” says Marwan Forzley, CEO of payments provider eBillme. “A lot of people don’t necessarily want to pay using a credit card or they may not have a credit card or a checking account and retailers need to be thinking about this more when they develop their payment strategy.”
Forzley adds there are 74 million consumers that use the Internet but do not buy online, and 10 million households in the United States with Internet access that lack credit cards. In addition, 50% of Americans are not comfortable providing their credit card account numbers online.
Failing to offer alternative payment options to credit cards and e-checks can constrain a retailer’s customer base and in some cases keep existing customers from purchasing big-ticket items or placing large orders because they lack the available credit on their credit cards.
“Some shoppers like cash alternatives because they are a budgeting tool,” says Philip Rubin-Streit, vice president of analytics for payments provider eLayaway. “Some online shoppers will even abandon their carts at checkout because the retailer does not offer an alternative to credit cards. It’s important that retailers give shoppers an array of payment options to encourage them to pull the trigger on the purchase.”
As its name implies, eLayaway provides traditional layaway programs in which retailers put a product aside and allow the customer to pay for it through installments. When the purchase is paid in full, the retailer ships the item.
Although retailers’ interest in layaway programs fell to the wayside as less cumbersome payment options such as credit cards moved into the mainstream, interest in such programs is being rekindled as a result of technological advances that streamline administration of layaway programs.
To purchase an item using eLayaway, shoppers click on the eLayaway icon at checkout and then select the period over which they will pay for the item. A monthly payment amount is calculated and presented to the shopper, who has the option to adjust the amount up or down, which automatically adjusts the date the product will be paid in full and available to ship. Finally, shoppers are asked to provide a checking account and bank identification number.
Administration of the program is handled by eLayaway, which debits customers’ bank accounts through the automated clearinghouse system. Shoppers are charged 1.9% of the transaction amount. Payments are processed through HSBC and remain in escrow until the full amount is received.
Reinventing an old standby
“Modern payment technology has reinvented the layaway program by removing the administrative hassle for both the retailer and the customer, who no longer has to send a monthly payment to the retailer,” says Rubin-Streit.
Creating a more satisfactory purchasing experience is also a focus for eBillme, which leverages online bill payment applications offered by financial institutions, such as banks, credit unions or bill pay portals. Shoppers initiate the transaction by clicking on the eBillme icon at checkout. A window appears confirming the order and transaction amount and displaying instructions on how to complete the transaction. An electronic copy of the bill is e-mailed to the shopper.
After leaving the checkout page, the shopper logs onto his financial institution’s bill payment page or a bill payment portal and adds eBillme to the list of billers to be paid. The shopper then enters the amount owed for a one-time payment. Once eBillme has been added to the list of billers, the shopper enters the amount owed after each purchase. Consumers do not need to open an account with eBillme, and eBillme is available through more than 13,000 financial institutions offering electronic bill payment. There are about 84 million users of bill payment services, according to eBillme.
Eliminating fraud, risk
The benefits to leveraging online bill payment applications include elimination of fraud, since shoppers must authenticate themselves to their bank, and elimination of the risk that a check may bounce because of insufficient funds.
“Retailers want to reduce fraud and bounced checks and by providing a payment option that eliminates these risks, it creates a strong business case for our product,” Forzley says.
Further strengthening the business case for eBillme is that retailers can experience a sales lift of between 2% and 10%. In addition, a JupiterResearch study commissioned by eBillme found when consumers are offered a secure cash-based payment alternative like eBillme, they will spend 13% more than shoppers paying with credit cards, and 47% more than shoppers paying with debit cards, on average. Retailers pay acceptance costs of up to 2% of the transaction amount based on volume.
“Our acceptance costs are about one-third of credit cards, on average, which is significant,” adds Forzley. “More retailers are looking for ways to lower their acceptance costs by moving transactions onto lower cost payment options.”