Some card companies are offering deals to retailers to promote certain cards online
By Lauri Giesen
The Internet has become an important ring in which credit card companies are
battling. With the current recession pulling down retail sales in the physical
world while Internet sales continue to grow strongly, the web represents lucrative
territory in the quest to gain card market share.
Credit cards are by far the most popular method of payment on the Internet—with
more than 90% of online purchases placed on credit—so it only makes sense that
the card associations and issuers want to grab as much share of that growing
market as possible. “The Internet space is growing so rapidly and it is replacing
many of the telephone and mail order sales. We need to make sure that we are
there for our cardholders when they shop online,” says Elizabeth Ward, vice
president of travel and entertainment industries for MasterCard International.
But MasterCard and its competitors want to do more than just serve their customers.
Each wants to ensure that it is the card of choice when those customers reach
the check-out section of an online retailer. To do that, MasterCard, Visa, American
Express and Discover have all at some point partnered with retailers to offer
discounts and give-aways to customers who make purchases on specific sites with
their cards. Generally, they seek strong partners who already conduct a considerable
sales volume online.
The obstacles
But each faces considerable obstacles to acquiring market share. For one thing,
most online credit card transactions reflect the brick-and-mortar world. “Unless
they see a tangible reason to do otherwise, most consumers will simply use the
same card when making an online purchase that they would have used in the physical
world,” says Robert Leathern, senior analyst with New York-based Jupiter Research
Inc.
Numbers from such researchers as Cambridge, Mass.-based Celent Communications
back up that assertion: Celent estimates online card brand market share reflects
what is happening with all purchases on credit cards (see chart, p. 25). That
dynamic could work, however, to further MasterCard’s online market share, some
observers expect, as Citibank, the largest bank card issuer, converts its entire
base to MasterCard.
Yet, many card companies believe that the Internet can present them with opportunities
to increase market share. But for card companies to stand out on the Internet,
they need the cooperation and assistance of online retailers who are willing
to push one card brand a little more than the others. Sometimes that means featuring
one card logo more prominently on a web site. Other times it means having one
payment card be the “default” card—the one that automatically pops up when a
customer goes to pay with a credit card. Finally, some retailers offer special
deals when a customer uses a particular card.
And while it is not as blatantly promotional, a retailer’s decision to participate
in certain online shopping security programs—such as Visa’s Verified by Visa
or MasterCard’s SecureCard—helps prompt the use of those cards. That’s because
some industry observers believe that new online shoppers are more likely to
choose to use a card associated with one of these programs under the assumption
that their purchase is more secure with that card.
All kinds of battles
To win over retailers, card companies have become innovative. “There are all
kinds of battles going on by card companies to win favor with the retailers,”
says Rene Pelegero, former head of global payments for Amazon.com Inc. and president
of Seattle-based Retail Payment Global Consulting Group. “Issuers are trying
just about every type of approach imaginable—from outright offers of cash to
offers to promote the retailers’ products in their own ads to partnerships.”
But not all retailers are willing to sell their space to card companies. “Acquirers’
contracts prohibit certain types of promotions,” says Pelegero. When retailers
sign up to accept credit cards, they sign contracts that require that they display
payment options with “equal prominence.”
But
there’s equal prominence and there’s equal prominence and some retailers have
found ways to stay within the technical definition, while still promoting a
partner’s brand. And some are willing to test the resolve of card companies
to enforce equal prominence. “Sometimes a card issuer will come up with an offer
that is rich enough to make a retailer willing to take the legal risk,” Pelegero
says.
Often those “rich” offers are geared toward getting a particular brand to
be the default card on a popular retailer’s site. Some card companies reportedly
offered outright cash or the willingness to promote the retailers’ products
to those who make that card association’s card the option that automatically
pops up when a customer makes a purchase. While customers can simply click and
move down a notch to another card if they desire, many believe that there are
enough consumers who will automatically pay with the default card to justify
the fight to become the preferred card.
Others, however, don’t think it is a big deal. “Consumers who are sophisticated
enough to feel comfortable shopping online will be able to figure out how to
change the default card,” says Jupiter’s Leathern.
Alphabetical order
Indeed, rather than select a favored card, most retailers prefer simple “fair”
solutions. Most retailers automatically pop up the card that the customer last
used—under the assumption that it is the one the customer will want to use again—for
their regular customers. For first-time shoppers, the card options are either
listed in alphabetical order or in the order of popularity as previously experienced
by that retailer.
Amazon.com, for example, lists Visa as its top option for first-time customers,
because that is the card brand that Amazon sees the most. “We tried to be fair
and put them in alphabetical order,” says Pelegero. “But we got a lot of complaints.
Because American Express came up first, a lot of customers weren’t watching
what they were doing and they typed in their Visa numbers under the American
Express name and then their orders got rejected. We switched to putting Visa
first because that was what nearly 50% of our customers were using and then
we put MasterCard second. We got fewer complaints that way.”
But some retailers are willing to put a preferred partner up front regardless
of market share. Travelocity.com, an online travel site, for example, promotes
the use of MasterCard on its site and has MasterCard as its default card. And
Travelocity’s partnership with MasterCard shows how such arrangements can benefit
both sides.
As part of an aggressive campaign by MasterCard to work with online travel
sites to promote its card brand, Travelocity and MasterCard are jointly sponsoring
a cruise promotion through the end of this year.
Customers who book a cruise on Travelocity and pay for that cruise using a
MasterCard receive a free stored-value card worth $50 to $250, depending on
the price of the cruise purchased.
While neither side will reveal how much each partner pays for the promotion,
executives say the costs are shared. And each claims it gets a lot of incremental
business because of the promotion. “Our market share on cruises booked by Travelocity
during the (first) six-week period of the promotion was 72%,” about double MasterCard’s
normal market share, Ward says.
The stored-value card offered is branded by MasterCard and can be used to
make purchases anywhere that accepts MasterCard. Yet, because the card is promoted
as a way to pay for purchases on the ship and at port during the cruise, many
consumers use the card to cover those expenses. “We do not track the usage,
but our experience is that consumers will typically use the card at the places
where you subtly hint they should use it,” Ward says.
Highlighting stored-value
Another benefit for MasterCard is that this promotion presented an opportunity
for the association to introduce its line of stored-value cards. MasterCard
is hoping that many of the cruise customers who got a free card will purchase
more of these cards in the future.
While MasterCard has chosen to put much of its promotional resources in the
burgeoning online travel business, other associations seem to be going after
a broader range of retailers. At the American Express web site promoting its
Blue card, a product specifically promoted as being a safe instrument for paying
for goods online, there is a list of dozens of retailer partnerships that offer
special deals when their merchandise is paid for with an American Express card.
Under the “apparel” logo, for example, there are 13 offers. While many of the
offers give free shipping as an incentive, an offering between sister companies
Marshall Field’s and Target stores offers a 10% discount on any purchases at
Fields.com or Target.com with an American Express card.
On its travel section, American Express has an offer with Midwest Airlines
where fliers can get $75 off a ticket that costs $250 or more. The ticket must
be purchased online with an American Express card.
While Discover executives say they are not currently conducting any promotions,
they add that they have worked with online retailers to promote the Discover
brand in the past. They decline to discuss the results. However, industry observers
say Discover has routinely sent e-mails to cardholders that contain hyperlinks
to web sites of retailers that offer bonuses to customers who pay with Discover.
Some experts, however, are critical of such efforts to give away goods or
discounts in order to acquire market share. Jupiter’s Leathern questions whether
such promotions produce the desired long-term brand loyalty that the card companies
seek. “This is less about brand loyalty and more about the offer,” he says.
“Customers might switch cards just to get the reward, but they won’t necessarily
use that card in the future.” Joint efforts between retailers and individual
card issuers—such as the affinity-branded cards that involve frequent flyer
miles—are different, he says, because they require continual use of the card
to accrue points toward a reward.
Perks call the shots
However, others see merit in the MasterCard-Travelocity promotion because
of the way it ties together cruise bookings from Travelocity, online payment
on a MasterCard and payment of ancillary costs with the prepaid card. “Promotions
only work if you can find a good niche where the offerings and the desired purchases
match up,” says Ken Kerr, senior research analyst for Gartner Group’s G2 unit.
“The MasterCard/-Travelocity offering is a good match, particularly since the
prepaid card is promoted as a way to cover travel-related costs.”
But others still argue that offerings need to encourage more long-term behavior
than what is offered by the one-shot-deal promotions. Diogo Teixeira, CEO of
Boston-based Livermore Research, a credit card consulting firm, contends that
co-branding deals between such large card issuers as Citibank, MBNA, and Bank
One and such retailers as Disney Corp. and L.L. Bean are more interesting than
what the associations are doing with retailers. Such partnerships typically
transcend Internet shopping in that customers with cards co-branded by a card
issuer and a retailer receive discounts or rewards when they use the cards anywhere.
But those deals can also create a big factor when customers make purchases at
those retailer’s web sites.
“Most people don’t think about whether they want to use a Visa or MasterCard;
they pick the card with the most perks and that is decided by the individual
card issuer,” says Teixeira. “Some of the cobranded deals, such as that between
L.L. Bean and MBNA and between Disney and Bank One, could go a long way toward
influencing customers to use those co-branded cards when they are purchasing
goods on the retailer’s Internet site.”
Aside from offering consumers freebies, one way that card associations and
retailers may subtly encourage consumers to use specific cards is through such
programs as Verified by Visa and MasterCard’s Secure Card offerings. American
Express’ promotion of its Blue card could have similar benefits.
Visa spent considerable dollars promoting its Verified by Visa program during
the past holiday season. A national advertising campaign told consumers that
by registering their cards with card issuers participating in that program and
by shopping at participating retailers, they were protected against someone
else making purchases on their cards. That’s because under the Verified by Visa
program, customers use passwords to assure their identity when making a purchase
at participating sites. MasterCard’s SecureCard works similarly.
While not all industry experts buy the notion that consumers are that much
safer with cards registered with such programs, even many of the skeptics agree
that many consumers perceive such cards are more secure—particularly customers
who have not shopped online before. Card issuers promoting such programs may
be getting a disproportionately large share of the purchases from new Internet
shoppers. Visa issuers who got into the market a few months ahead of MasterCard
may see the biggest gains in new market share, some argue.
Early edges
“Issuers who got out in front will have an advantage in that once customers
start using that card to shop online, they’re likely to continue to use that
card again and again,” says Gartner Group’s Kerr.
Yet, how significant this early-to-market edge really is can be debated. Ariana
Michel Moore, an analyst with Celent, says it will take a while before programs
such as Verified by Visa can change market share. “Those already comfortable
shopping online will continue to use the same cards they always used,” she says.
“Where you will see a difference is in customers who were hesitant to shop online
before. But I don’t see there being enough of those consumers to affect market
share anytime soon.”
Still, card companies must see some potential in working with retailers to
acquire market share because they continue to invest in promotions and security
programs. Only as Internet volume continues to grow will it become evident how
effective those efforts are.
Lauri Giesen is a Libertyville, Ill.-based freelance business writer.
Smoothing online check refunds
The percentage of consumers who pay online by e-check remains small. But that
doesn’t mean they’re not an important part of the market—or that the processes
that retailers take for granted with credit cards don’t create headaches when
retailers try to replicate those processes with check payers.
Take refunds, for instance. When a customer pays by credit card, the retailer
knows exactly what to do to issue a refund—the procedures have been long established.
The retailer knows immediately that payment is valid and, depending on the agreement
with the merchant bank, will receive the funds in a set amount of time. Reversing
the transaction is easy enough because a handful of credit card companies have
built reversals into the process.
But when a customer pays by check, nothing is as certain. “Right now we have
no way to give the money back immediately,” says Vance Brown, chief customer
officer at Ritz Interactive Inc. “We have to confirm that the check cleared,
then we have to put in the check request, run it through accounting, cut the
check and mail it.”
That’s why Ritz, which operates camera and boating sites, agreed to be part
of a test of an electronic check refund product from Certegy Inc. “Our process
is not very customer friendly,” Brown says.
While some payments processors, such as AmeriNet Inc., have offered e-check
refund procedures for several years, others, such as Certegy, are just coming
out with theirs. There has not been a standard check refund process because
e-checks are still the bailiwick of dozens of payment processors, all with their
own procedures—or lack of procedures. By contrast, a few companies set credit
card processes and all processors abide by those rules.
In developing the refund process, Certegy has tied each refund to an initial
transaction, so the retailer then has a record of the entire transaction, says
Jan Whitfield, vice president of consumer not present payment solutions. Similarly,
a refund through AmeriNet is linked to an individual transaction, says David
Kerlin, president.
By automating, Ritz expects to save $50 to $100 per refund, Brown says. The
costs come in reduced staff time to process, fewer calls to the customer to
confirm that the check has cleared before a refund is issued, and less paperwork.
The refunds also can be applied to goodwill payments—partial refunds to placate
disgruntled customers—or refunds of such costs as shipping charges. “It’s often
cheaper for a retailer to refund a $5 charge than to spend $10 of a rep’s time
trying to talk a customer out of it,” Kerlin says.
—Kurt Peters
