After six months of beta testing with a handful of merchants, Bill Me Later, a new cardless payment option designed for e-retailers by I4 Commerce, is on the verge of a major market development effort, according to Jim Ellis, director of merchant development for the 2-year-old company, which is funded by credit card processing giants Paymentech and First Data Corp. and two venture capital firms. Speaking at the eTail 2002 Conference in Boston this week, Ellis told attendees that I4 Commerce has signed up “20 significant retailers in the card-not-present space and will be adding many more in the fourth quarter.” Interviewed after his presentation, Ellis declined to reveal the names of the retailers who have signed up for the full-scale launch of the product in the fall, but he added “they include some very, very big names.”
Introduced more than a year ago, Bill Me Later allows web shoppers to pay for items ordered on the web through monthly installments on a line of credit provided by I4 Commerce. When buyers click on the Bill Me Later payment option on the checkout page of a web merchant, they are asked to provide only their birth date, which, along with the billing information they have already filled out, is transmitted to the I4 Commerce authorization center. The purchase is authorized (or rejected) in about the same time as a credit card authorization.
By allowing for credit payment of goods purchased from the Internet without providing a credit card account number, Bill Me Later is designed to eliminate what Ellis believes is one of the biggest obstacles to Internet shopping. “Security is the number one concern that is cited by Internet users who do not shop online,” he told eTail attendees. “And it helps explain why 52% of people abandon shopping carts on the web when they are asked for a credit card account. Credit cards are designed for the face-to-face retail environment and not for the card-not-present channels.”
Because of the higher credit card fraud rates experienced on the Internet, said Ellis, e-retailers pay discount rates that are up to 40% higher than rates paid by brick-and-mortar merchants. By comparison, I4 Commerce expects to charge merchants a discount rate of just 1.5% vs. the 1.8% to 1.9% that major merchants pay Visa, MasterCard and American Express for web-based purchases.
The only reason credit cards account for 98% of Internet retailing payments today, claimed Ellis, is because there have been no other viable alternatives, although he concedes that electronic checks account for the remaining 2%. “Customers in the offline world choose check or cash when offered more than credit cards,” Ellis said. 70% of the total transactions of the nation’s 50 largest retailers are paid with cash or check, he said. “Online, they don’t have another option to card payment.”
What clearly makes Bill Me Later a serious contender for web-based retail payments is the fact that First Data Corp. and Paymentech are funding it. Azure Capital and Crosspoint, two venture capital firms, also are participating in I4 Commerce. First Data and Paymentech, which is co-owned by First Data and Bank One, together already process more than 80% of card-not-present credit card transactions. Understandably, they have added Bill Me Later to their processing portfolio, the first such new payment option they have accepted since Discover Card in 1998. Bill Me Later also has established partnerships with a number of major e-commerce processors. “We have developed relationships with the largest processors in the payment industry,” said Ellis. “All any retailer needs to do to use Bill Me Later is upgrade to their payments processor’s latest software release.”
EBags and AOL are among e-merchants that offer the Bill-Me- Later method. In the relatively limited use that the new payment option has received, Ellis noted that it has already produced beneficial results, increasing web sales and conversion rates by as much as 30%. He argued that Bill Me Later can provide web sites with incremental volume by providing payment options to credit-worthy purchasers who are afraid to transmit their card account numbers over the Internet or whose cards have recently expired or have hit their credit limits.
For e-merchants, who are guaranteed payment once I4 Commerce has authorized a Bill Me Later transaction, the new payment method amounts to a potentially huge new line of credit for prospective web shoppers. For Visa and MasterCard and the banks that issue their plastic, it means competing for web payment with a major new retail credit mechanism that has the backing of the same company that dominates processing of their credit cards.
Because of its parentage, I4 Commerce was able to assemble a team of credit card industry experts, led by CEO Gary Marino, who was previously chief credit officer for Citibank’s card operation. Such consumer credit expertise likely explains how I4 Commerce was able to craft a viable bill-me-later payment option that allows it to assume 100% of the credit risk. It does so, explained Ellis, because “We reverse engineered” consumer credit databases so that it can match a web buyer’s date of birth with his address, giving the company access to reliable consumer credit history. And to date, Ellis reported, I4 Commerce has approved 98% of Bill Me Later authorizations which have been submitted by buyers with credit cards, about the same approval rate experienced with online credit card payment. And surprisingly, it has even approved—and thus granted credit to—about 35% of Bill Me Later applications submitted by purchasers who have no credit card.
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