May 30, 2008, 12:00 AM

How to Pay Less for Payments

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Cost vs. benefit

Retailers can obtain discounts on interchange by providing information that helps prevent fraud. For instance, participating in the online authentication systems Verified by Visa and MasterCard SecureCode lowers interchange by an average of 21 basis points, or 0.21%, according to CardinalCommerce Corp., whose Centinel service connects e-retailers to these security systems and to alternative payment providers.

Some processors charge more if the retailer does not provide the 3- or 4-digit security code on the back of payment cards with the authorization request. Ask questions and shop for the best deal, Mott advises retailers.

Paying more might make sense if it keeps a customer from abandoning a transaction when asked for an additional piece of data, some retailers have decided.

Abandonment went up more than 10% when SureSource LLC began asking for the security code on one high-volume web site last year, leading the company, which operates e-commerce sites for such branded manufacturers as Black & Decker and Crayola, to stop requesting the data. With low fraud losses, SureSource was not willing to trade sales for processing savings, says Mike Mullen, director of e-commerce. To minimize both abandonment and risk, some retailers request the security code only from new customers, figuring those are riskier transactions.

There can be many other fees in a processing contract, such as for processing refunds or orders taken by a call center agent. Mullen looks at each fee and calculates how it would affect his business.

For instance, some processors waive fees on refunds while others do not, which could be important for a retailer with a lot of refunds. “There may be a 5-cent charge that will add up or a 30-cent charge you’ll never see,” he says. “You have to look at the deal and apply it across your order history.”


Among the banes of a retailer’s existence are chargebacks, reversals of payments that typically are the result of fraud, customer dissatisfaction or merchant error. Processors usually charge a fee, ranging from a few dollars for larger retailers to $15 or more for smaller ones, for processing a chargeback. But processors can also offer valuable expertise in helping retailers fight chargebacks.

Processor Litle & Co. provides Jewelry Television and its e-commerce site with a dedicated expert who has provided tips on when it’s worth fighting a chargeback, says Lisa Tennant, the retailer’s vice president of cash management and merchant services. For instance, a retailer has a better chance of winning when it delivered the product to the billing address and obtained a signature, Tennant says. She says the Litle representative “has gotten to know our business and helped us identify when we can dispute a chargeback and when it’s not worth applying resources to a dispute.”

Retailers can prevent chargebacks in many ways, including by informing a customer when issuing a refund, says Gene Hoffman, CEO of payments processor Vindicia Inc. That likely will prevent the consumers from calling his credit card company to reverse the original charge, generating a chargeback. “Often merchants who don’t communicate well will issue the refund and then get a chargeback, so they’re doubly out,” Hoffman says.

Retailers can also cut costs by using gateways like CardinalCommerce and Certegy’s ClearCommerce that facilitate acceptance of non-card payments like PayPal and Bill Me Later that typically charge lower fees than Visa and MasterCard. Bill Me Later’s fee varies between 1.5% and 3% of the transaction amount, depending on the retailer’s volume, and averages about 0.7% less than credit card fees, says Vince Talbert, vice president of marketing.

Send me the bill

Bill Me Later is a little less expensive than credit cards for, says Internet director Jodi Bresina. But the big win has been in higher sales since the e-commerce site introduced the payment method in February. Bill Me Later accounted for 6% of transactions in March, those orders averaged 13% more than the site’s norm and 75% of Bill Me Later customers were new, Bresina says.

Bill Me Later also guarantees payment as long as the retailer verifies the billing address and fulfills the order, says Mullen of SureSource, which has accepted Bill Me Later for three years. However, Bill Me Later, which runs an instant credit check on a customer applying to use the service, declines more than a quarter of his customers, Mullen says. To keep from losing sales, Mullen says his sites present a message saying that Bill Me Later was unable to process the transaction; most customers then pay with credit cards.

Another deal for online merchants has been Google Inc.’s Google Checkout service, introduced two years ago. Google provided free processing on transactions until this year and now charges 2% plus 20 cents per transaction. But it’s still an attractive offer because Google will apply those transaction fees to a retailer’s spending on Google AdWords search page ads, crediting $1 for every $10 processed.

That persuaded Bellone to begin offering Google Checkout as a payment option this spring at “They’re handing it to you on a silver platter, so you might as well use it,” he says.

One issue: Google only guarantees payment if the retailer obtains a signature upon delivery. Delivery services charge from $2.50 to $3.50 extra to guarantee a signature, and CompSource is passing that surcharge on to customers who pay with Google Checkout, Bellone says.

More to come

The payment options available to e-retailers have grown in recent years with the arrival of alternatives like Bill Me Later and Google Checkout and the entry into e-commerce processing of RBS Lynk, a subsidiary of Royal Bank of Scotland that is a significant e-commerce processor in Europe.

More payment alternatives are coming, including Bill Me Later testing the waters of offering its service to smaller retailers. It currently targets online merchants with at least $10 million in annual sales, but hopes to lower that threshold to either $1 million or $5 million by providing more automated service tools, Talbert says.

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