May 5, 2004, 12:00 AM

How can I pay? Let me count the ways

Retailers are offering consumers multiple ways to pay online—andconsumers are responding by spending more.

At TigerDirect Inc., a retailer of computers and consumer electronics, management’s goal is to offer as wide a selection of products as possible. But while expanding its product lines to build its reputation as a destination site for electronic products, it has extended its broad-brush strategy to include multiple online payment methods as well.

TigerDirect has learned, says Lonny Paul, director of e-commerce, that retail success depends on offering enough products so customers can choose what they want. “It’s the same way with payment methods,” he says. “We want to offer them all and let customers choose. We don’t want to restrict customers by what payment method they can use.”

Without offering that range of payment options, retailers may be forfeiting a large chunk of potential sales. “Credit cards are an 80% solution, which means there may be 20% or more of an opportunity that a retailer is not addressing without additional payment methods,” says Doug Schwegman, director of market intelligence for CyberSource. Corp., a provider of payment processing services.

TigerDirect, which sells computer equipment and accessories, digital cameras, televisions and other consumer electronic products and recently launched sections on office furniture, video games and digital video equipment, has moved further than most retailers into multiple payment methods, offering several alternatives to the general purpose credit cards, including e-checks, eBay Inc.’s PayPal third-party payment service, I4 Commerce Inc.’s Bill Me Later invoicing and bank wire transfers.

TigerDirect’s payment offerings represent a growing recognition by merchants that consumers desire options in how they pay-and that there’s money to be made and new customers to acquire by accommodating that desire. At Wal-Mart Stores Inc.’s, for example, offering multiple payment options-it accepts e-checks in addition to credit cards and gift cards-is another way to increase sales by extending Wal-Mart stores’ reputation for variety and customer service to online customers, says David Rolf, senior manager of finance operations. “Many customers pay with checks in our stores, so we’re extending what Wal-Mart stores offer to,” he says.

Offering multiple payment options also has its challenges, starting with deciding which methods are most in demand by a merchant’s customer base. In addition, multiple payments require network connections to the payment service vendor, they can bring new levels of risk for which a retailer may be unprepared, and they present the merchant with the challenge of administering multiple payment methods.

The benefits of offering multiple payment methods show in several ways, experts say. By including multiple payment options along with risk management, order automation and other processes, retailers surveyed by CyberSource realized an average 15% improvement in combined lower costs and increased revenues.

The survey also found that shopping cart abandonment rates decline along with increases in the number of offered payment methods. Shopping cart abandonment for survey respondents offering only one payment method was 40%, CyberSource says. The rate dropped to 34% for retailers offering two payment methods, 29% for those with three and 28% for those with four or more. “To get dramatic steps of improvement, retailers need to move to whole new payment categories beyond cards,” Schwegman says.

The CyberSource survey of 147 executives from retail companies with a combined $13 billion in 2003 online sales found e-checks to be the most popular form of payment other than general-purpose credit cards, followed by eBay’s PayPal and other non-card services such as I4 Commerce’s Bill Me Later invoicing service.

Significant part of sales, using a web-based e-check application from Certegy Inc., says e-checks have quickly become a contributor to revenues. “E-checks are a significant part of our sales,” Rolf says. “Some e-check payments are incremental sales from customers who may not have or use credit cards.”

Although Wal-Mart won’t say how many online sales it processes with e-checks, customers use e-checks for purchasing all types of products throughout, Rolf says. He adds that the low cost of offering e-checks complements Wal-Mart’s corporate policy of keeping down operating costs while maintaining a high level of customer service.

“Merchants are looking at opportunities to cut down on payment transaction costs, and they get their biggest bang for the buck with e-checks,” says Larry DePalma, manager of the eCheckSelect suite of payment transaction services at Paymentech L.P., a provider of payment processing and related services.

Credit cards typically cost retailers about 2.5% of the value of the sale while e-checks can cost anywhere from a flat 20-25 cents per transaction if the merchant takes on all risk and performs other processing to about 2% of the value of the transaction if the merchant prefers to have the payment provider do all the work.

E-checks also offer a number of advantages as perceived by consumers, experts say. They cater to online consumers who either don’t have credit cards or have maxed out on their credit lines and they serve consumers who prefer to directly pay for expensive items without adding to their credit card debt. “It’s reasonable that consumers would use e-checks for high-ticket items,” Rolf says.

“E-checks are very hot,” says Paul of TigerDirect. Although TigerDirect doesn’t yet offer its customers the option of directly filling out an e-check form on, it lets customers call in their check information to a customer service rep, who enters the data into an online form for bank processing.

Phone comfort

Paul says TigerDirect decided to offer an e-check service from Certegy through its customer service call center partly because it was the best use of its resources and because some customers indicated they were more comfortable giving their account information to a person in a more familiar telephone communication than entering it into a web form. “Some people feel more secure on the phone,” he says.

Nonetheless, in following its strategy of not restricting customer access to alternate payment methods, TigerDirect is planning to offer an e-check service directly on its web site, Paul says.

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