Mobile accounted for 25% of Ulta's e-commerce revenue during Q2.
Merchants accept non-credit card payments to acquire new customers and increase average orders.
Mike Hackley, CEO and co-founder of ShoppersChoice.com LLC, has yet to meet an online payment method he doesn’t like. “We have tons of payments systems because I think a retailer ought to have as many alternative payments as it can get,” he says.
The more payment options a shopper sees on ShoppersChoice.com or on its growing number of sister sites, he figures, the more likely the shopper is to buy one of the mass marketer’s barbeque grills, wristwatches or pool tables instead of jumping to a competitor. “We’re gaining market share, but if we didn’t offer Google Checkout, the likelihood is greater that a shopper will buy from a competitor who does offer it,” Hackley says.
Like other retailers offering a growing number of payment methods beyond traditional credit cards, ShoppersChoice is realizing other benefits as well. Many consumers are motivated to use alternative payment methods like third-party payment service PayPal, billing services Bill Me Later and eLayaway, cash and check substitutes like eBillMe and MyECheck, and other alternatives to credit cards because of the convenience and security consumers believe they offer, according to a study by Javelin Strategy & Research. Javelin found that more than 60% of consumers who use either PayPal or a billing service like Bill Me Later cited convenience as a reason for paying with them, and 40% or more said they believe these methods were more secure than credit cards.
But there is also general interest among retailers in alternative payments as a whole as a way of giving consumers more choice and service, says Nikki Baird, managing director of retail industry research and consulting firm Retail Systems Research LLC. “When I talk to retailers about their interest in alternative payments, no one thing comes up, except for the customer service aspect, the ability to make a payment any way a customer wants,” she says.
In addition, alternative payments offer merchants lower costs of processing payments. Compared to credit card transactions, which typically cost merchants 1.5% to 3% or more of the value of transactions, fees for alternative payments in many cases are lower.
“Customers are responding to these alternative payment methods-and combined with the lower transaction costs for merchants-that’s where our industry is heading,” says Sumit Bhanote, co-founder and director of business development for LuggagePoint.com.
Combined with introductory promotions some alternative payment providers have been offering to consumers and merchants, the overall value offered by alternative payments has resulted in a sharp increase in the number of merchants offering them, says Sandeep Walia, president of Ignify, provider of e-commerce software that supports multiple payment methods. “Among merchants signing up today, about 40% are asking for alternative payment methods as opposed to 10-15% a few years ago,” he says.
Payments processed as direct debits from bank accounts through the automated clearinghouse system vary in costs based on individual clearinghouses, but such transactions can be as low as half the cost of credit card transactions, Walia says. Even with the cost of the software required to accept ACH transactions-on average about $2,000 as part of the Ignify platform-it doesn’t take long for merchants to produce a net savings over credit card fees, he adds. The cost of the entire Ignify platform ranges from $30,000 to $50,000, covering multiple payment methods including credit and debit cards, electronic checks, PayPal and bank wire transfers.
The online payments industry, meanwhile, is offering more options than ever. If consumers’ appetites are whetted for alternative forms of online payments, they might want to hold onto their wallets-because there are more to come as the market evolves beyond just concerns about security and convenience to innovation based on new ways consumers are shopping.
“Over the last two or three years, alternative payments have really taken off in terms of innovation and options to answer the concerns of people who were nervous about paying online,” Baird says. But now, she adds, the payments industry is stepping into areas no one would have expected a year or two ago, bringing new payment options into areas like gift cards and social networks as well as retail e-commerce sites.
“Now payment companies are coming up with wild and zany new ways to pay,” she says. “They may not have the traditional Visa and MasterCard seal of approval, but they point to new levels of technology and consumer comfort with online shopping.”
The expanding payment options fall into several categories, including:
- billing services that e-mail an invoice following purchase and let shoppers pay through credit cards, direct account debits or mailed checks;
- services that let consumers pay cash for a temporary debit card;
- mobile payments charged to credit cards or debited from bank accounts;
- mobile payments for digital content charged to telephone bills.
For all the payment options available, however, merchants must still figure which ones bring value to their strategies, such as increasing average order values or acquiring new customers.
Online lingerie retailer Bare Necessities has experienced an increase of about 3% in average order value for orders placed through the shopping section of the Bill Me Later web site, says Keira Lim, director of customer acquisition for BareWeb Inc., which conducts business as Bare Necessities. Promotions have included free shipping and special sales on certain brands, she adds.
Bill Me Later contends that average order values for many of its retailer clients have increased 75% or more, depending on the types of offers. The highest increases are usually tied to 3-month or 6-month same-as-cash offers that provide incentives for shoppers to buy high-ticket items or bundle multiple products together, says vice president of marketing Vince Talbert.
The bill’s in the e-mail
Bare Necessities also processes orders for customers who choose the Bill Me Later option in the checkout section of BareNecessities.com, but hasn’t determined how that affects order value, Lim says. Because shoppers are already in the checkout phase when they choose Bill Me Later on its own site, it’s difficult to determine whether shoppers would complete a sale without the Bill Me Later option, she adds.