For efficient and effective payment systems, it`s all about integration
By Leslie Beyer
Abandoned shopping carts. Fraud. Fragmented front-end and back-end systems. Customers who want to pay by check or debit card. Slow purchase authorizations. These are just some of the issues that have online merchants scrambling for stream-lined, efficient and affordable payment solutions.
With online sales projected at $108 billion by 2003, an efficient and effective checkout and payment system isn’t just convenient—it’s critical to keeping a new generation of Internet-savvy shoppers buying on your site and coming back for more.
But there’s a lot of work to do: 70 to 90% of online merchants re-key order information into an offline point-of-sale terminal to begin the fulfillment process, says Joseph Marino, an e-commerce analyst for Current Analysis Inc., Sterling, Va. This disconnect can mean big headaches for retailers—as many witnessed during last year’s holiday shopping season. Along with the risk that order information will be re-entered incorrectly, customers often don’t find out that items are out of stock or on backorder until it’s too late, leaving them angry and unwilling to return to the site.
Though e-commerce systems get retailers up and running online, most do not offer an integrated payment application that ties back-end fulfillment operations into the front-end checkout process. The good news is that the online technology market is overflowing with companies that provide products and services for nearly every payment need. And with today’s open technology platforms, most companies offer applications that allow online retailers to easily expand and upgrade their systems as needed. Once integration is in place, online merchants can adapt quickly to the changing payment patterns of technology and consumers.
But getting there is costly. A fully integrated payment system ranges in price from $200,000 to several million dollars. On top of that, per-transaction fees can run 5 to 40 cents, depending on volume.
To soften the blow and justify the expense, some payment system vendors are offering enhanced services—such as fraud detection, tax calculation and fulfillment manage-ment. They include CyberSource Corp., San Jose, Calif., and ClearCommerce of Austin, Texas, both of which provide back-end integration. At the same time, Marino says competition is lowering payment processing fees.
Adding value
“It’s not just about payment anymore,” says William Donahoo, vice president of marketing for CyberSource. “Online merchants now need more than a payment solution to facilitate an order or transaction. If the back-end systems don’t work perfectly, customers will be frustrated and retailers will lose shoppers.”
Along with card authorization and settlement, CyberSource offers fraud screening, fulfillment messaging, electronic check processing and real-time address verifying. Electronic check processing, the company’s newest service, allows online merchants to accept checking account and bank routing numbers that can be sent through bank networks to debit a customer’s account. Merchants are able to store the account inform-ation, or the customer can enter the data each time.
Donahoo wouldn’t discuss actual costs, saying only that merchants will pay a flat per-transaction fee based on volume for accepting checks. Yet they’ll save the discount and interchange fees associated with credit cards.
“Merchants who already use our credit card services have a commerce component that we give them on their Web site,” Donahoo says. “It’s the application processing interface, a set of libraries that interface to our service. The merchants don’t have to do anything except some basic scripting to add the check logic.”
Costs for CyberSource’s services vary, but e-retailers can expect to pay a setup charge as low as a few hundred dollars or as high as several thousands of dollars, depending on how quickly a merchant wants to integrate the site. Transaction fees then add 7 to 40 cents per order, depending on volume and the services used. Fees decrease as a merchant’s volume rises and more services are added.
Carolyn Brackett, vice president of Internet commerce for First Data Corp., Atlanta, one of the largest payment processors, agrees that online merchants need flexible and scalable payment systems. In time, any payment method accepted offline—whether debit cards, smart cards, gift certificates, checks, even cash—will be accepted online. “Internet retailers are turning to a service-based model where they can use a gateway service or come to us directly to simplify the process,” Brackett says. “We are making the point-of-sale data delivery as simple and easy as it is in the brick-and-mortar environment.” That allows retailers to upgrade their systems from the server with no more than the press of a button, she says.
First Data’s SurePay gateway can be downloaded through one of the company’s designated Web sites. With a few configuration steps, the service is integrated into the Web site, allowing the merchant to accept various transactions. The merchant’s acquirer, Brackett adds, determines pricing. The service generally includes a set-up fee, plus a monthly charge or transaction fees that vary by type of payment.
“Online merchants are confused about what software to buy and what providers they can work with,” she says. “If a merchant goes out and buys a software package to accept credit cards, they have to do a lot of coordination between the gateway service and the acquirer.” First Data’s gateway service, she contends, handles all that automatically. The company has more than 60,000 online merchant accounts, but Brackett won’t say how many merchants currently use the gateway.
First Data also recently introduced two new payment services: real-time check verification through TeleCheck and cash acceptance through Western Union. Both TeleCheck and Western Union are First Data subsidiaries, and each of these services can be used with and downloaded through the gateway.
The cash acceptance software issues an invoice number to the customer, who then takes the number to a Western Union office, which handles the payment and credits the merchant’s account.
The coming of cash
By the third quarter of last year, more than 19 million adults used credit cards to make online transactions, compared with 9.3 million in 1998 and 4.9 million in 1997, according to Cyber Dialogue, New York. Though these numbers mean that credit card payments still make up more than 90% of all online transactions, there’s some movement toward cash and checks. Yet most industry experts believe it could be several years before other payment forms gain critical mass.
According to Michael Turner, vice president of marketing for ClearCommerce Corp., online retailers should keep an eye on stored-value and gift certificate services, which are gaining popularity. These payment methods, such as Flooz, require separate shopping cart software to support and route payments.
Turner says ClearCommerce’s software suites integrate easily into most checkout systems and allow merchants to accept all types of credit cards and choose the card processor right for them. In addition, the company offers fraud protection, shipping and tax calculation, plus a module for digital downloading. It creates a new URL and downloads what the consumer purchased over the Web and checks to make sure all information was received.
Meanwhile, the recent introduction of American Express Co.’s Blue smart card has consumers and retailers taking notice. If smart cards gain market share, they stand to supply a wealth of consumer information. Smart cards contain a digital wallet, a feature that speeds up ordering processing at the checkout.
Among today’s payment system players, most offer standard or customized systems that accept digital wallets. But with no standardized wallet technology, wallets a often aren’t compatible from site to site, a fact that diminishes their functionality for consumers.
Until a wallet technology standard is set, most wallet vendors are following the most commonly used format. The trouble is, most merchants have not complied with creating forms that fit most wallet formats. To counter that, some wallet vendors have developed intelligent wallets that spot empty fields and save data for future visits to a particular site.
Globeset Inc. of Austin, Texas, is working on that capability. The company offers a server-based wallet application that accepts any type of card and multiple cards.
Ricki Boyle, vice president of marketing for Globeset, believes that eventually, wallets will be become more like shopping bots. “Wallets will be compatible with other online payment mechanisms such as micropayments, alternative currencies, and the purchase and redemption of gift certificates, loyalty points and coupon redemption,” he says. “It will be an integral part of the overall consumer, merchant and financial service provider relationship.”
Globeset is focusing on the merchant side and offers one-click buying, rather than requiring merchants to conform to a protocol or use form-fill technology. “We are working on wallet technology that will map a merchant’s site, which allows the wallet to properly identify the structure of that site and interact with it accordingly,” Boyle says. “For online shopping to flourish, purchasing agents—or wallets with multiple types of mechanisms and tools—will be essential.”
Globeset’s basic wallet technology is free to merchants. And Boyle says the company already has issued wallets through Citibank, Chase Manhattan Bank and American Express. Globeset also provided the wallet software for the AmEx Blue card.
Though time will tell whether wallets and other forms of payment catch on, retailers who integrate their checkout and fulfillment systems stand to be ready.
“Within the next year or two there will be payment integration of the various channels for a merchant’s online presence, physical store and catalog,” Current Analysis’ Marino says. “Once that happens, merchants will have the ability to integrate transaction data from all those channels, which will be important for companies to coordinate their sales and marketing strategies as the dynamics of customer behavior change.” 
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