October 31, 2006, 12:00 AM

Cost & security

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Even though many analysts view Google Checkout as a payment alternative to PayPal, Google insists it’s not a form of payment. Instead it uses consumers’ existing cards and streamlines the payment process. Either way, it definitely is a competitor in the payment arena because of its potential to eat away at PayPal and other players.

Free transactions
For example, the standard rate for using Google Checkout is 2% of a sale plus 20 cents per transaction. Merchants who accept Checkout and also use the company’s AdWords program can process $10 in sales at no charge for every $1 they spend on AdWords. This makes use of Checkout considerably less expensive-potentially even free-than what merchants must pay for card and PayPal transactions.

“With Checkout we’re focused on the entire search-find-buy cycle of e-commerce-driving leads via the Checkout badge that appears in AdWords ads, increasing conversions by allowing buyers to make their purchase with just a few clicks, and reducing costs through the AdWords pricing incentive,” a company spokesman says.

Although Google won’t release detailed numbers, the spokesman says it added thousands of merchants to Checkout during the third quarter. Participating merchants include BlueFly.com, Buy.com, RitzCamera.com and Sierra Trading Post. Google also declines to give sales volume.

“Google Checkout is kind of a different flavor because on the one hand it’s more of a payment ­facilitator with the end goal of trying to boost ad spending,” Schatt says. “Its core business is not payments, but a lot of what it does is manage payments because so many people are basically paying for AdWords and they’ve got to have a robust payment infrastructure for that.”

What appeals to many merchants about Google Checkout is the ability to bundle AdWords costs in with potentially lower payment processing costs, Schatt says. “They’re two of the largest line items that any merchant has.”

Shopping.com, eBay’s comparison shopping engine, expects to test similar cart-related payment functionality by year’s end. The integrated shopping cart, with attached wallet functionality, will enable shoppers to purchase items from multiple merchants across Shopping.com directly from Shopping.com using one cart. The shopper won’t have to visit merchants’ sites to complete the purchase.

Because of Shopping.com’s ties to eBay, the 90-million plus registered eBay users don’t have to enter their information again, if they sign in under an eBay account. The sign-on places them right in the shopping cart and at checkout they only need to provide payment and shipping information. Shoppers can use any payment method.

Even more nuance
Adding yet another nuance to the alternative payment scene is the fast-growing Bill Me Later. It’s a form of e-invoicing, in which a customer is granted an instant credit line to make a purchase and then is sent a bill. When a shopper clicks the Bill Me Later box at checkout, he is asked to provide two basic pieces of information, such as date of birth.

Bill Me Later processes that information through a proprietary gateway comprised of multiple sources of customer ­information-including credit bureau and proprietary databases-to assess the shopper’s creditworthiness. The transaction is approved or denied within three seconds. Bill Me Later handles all billing and collections and assumes all fraud and credit risk.

“It’s really a convenient option for the merchant to adopt since it acts just like a credit card on the backend, but from a consumer appeal perspective it’s simply checking a box on the payment page saying ‘Bill Me Later,’” says Talbert of I4 Commerce.

I4 Commerce has developed a turnkey process that leverages the retailers’ existing payment ­processors. Retailers pay between 1.5% and 1.85% of the sale plus 15 cents per transaction, depending on the size of the merchant. “That is typically 30% to 40% lower than what they would be paying with Visa or MasterCard,” Talbert contends.

2 x 7
Consumers who sign up for the Bill Me Later option typically spend 28% to 46% more in the first 90 days than customers using credit cards, according to I4 studies. In addition, the average Bill Me Later customer visits the Bill Me Later web site twice a month and ­connects from there to seven different ­merchants during those visits, Talbert says.

The Bill Me Later option also is designed to integrate with ­retailers’ merchandising promotions. For example, an electronics retailer could offer a customer no payments for 12 months if they buy a plasma screen TV.

“The blending of merchandising capabilities with payment capabilities-being able to dynamically bundle products that can be paid for in a promotion-is very appealing and has led to more impulse buys because the credit experience is so straightforward and user friendly and the consumer can delay payment as an alternative to the credit card,” Schatt says.

Another alternative online payment method that holds potential is an initiative being developed by NACHA-The Electronic Payments Association. NACHA will begin testing an Internet payment option-generically known as a credit push-tied to a shopper’s bank account early next year. With the NACHA payment option, consumers will be able make online purchases by accessing their bank accounts online, says Samantha Carrier, senior director of special projects. The ACH model leverages a consumer’s online bank account and the bank’s online platform for authentication.

A shopper initiates a credit push transaction by selecting the NACHA option at checkout. If the shopper’s financial institution is participating in the program, she will be presented with a log-in screen for her online banking program. After the consumer is logged into the site she sees details of the transaction, including the retailer’s name, shopping cart items and price. Once she authorizes the sale, the consumer is redirected back to the retailer’s site. The bank authenticates the transaction and sends the seller real-time authorization of a guaranteed payment.

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