May 30, 2008, 12:00 AM

How to Pay Less for Payments

(Page 3 of 3)

CardinalCommerce expects to offer this summer a payment method called eLayaway that lets consumers pay over time, receiving the goods once full payment is received. Merchants pay nothing, while consumers pay a fee of 1.9% of the purchase amount. About 700 mostly small retailers already offer the service, and eLayaway is hoping for greater acceptance once Cardinal offers the option to the 33,000 merchants that use its Centinel payment platform.

Online retailer has been testing a new credit card called RevolutionCard, which only charges merchants 0.5% of the transaction amount, roughly a fourth of Visa and MasterCard rates. The company behind the card, Revolution LLC, backed by AOL founder Steve Case, is working on deals with payment processors that will make the payment option available to more online retailers in coming months, the company says.

There are more processors specialized in certain kinds of online payments, such as Vindicia, which focuses on payments for digital goods, such as music downloads, and on subscriptions and other recurring payments. One client is online art community and retailer, which gets 23 million unique visitors per month and sells a premium service starting at $4.95 per month that lets customers customize their home pages, browse without ads and add content, says Steve Gonzalez, vice president of business development.

In the past, did not offer customers the option of automatically renewing their subscriptions because it did not want to store credit card numbers and have to comply with card industry data security rules. Now Vindicia holds the card numbers and handles recurring billing, persuading the average customer to sign up for an additional two or three billing cycles, Gonzalez says. Vindicia charges a 2% fee on those renewals.

And a much larger new vendor could emerge if Chase Paymentech-a joint venture between the country’s largest card processor, First Data Corp., and major bank J.P. Morgan Chase & Co.-breaks up as a result of First Data’s sale last year to a private equity firm. That sale gives Chase the right to end the joint venture, which could result in First Data offering its own e-commerce payments service, says Mott, the consultant.

“This could be a once in a lifetime opportunity for merchants if First Data offers equivalent platform capabilities to Paymentech,” Mott says. “Imagine having two Paymentechs, one brand new and hungry for business.”

It’s by no means clear that scenario will play out. But it is clear that well-informed merchants already have plenty of options for reducing the cost of accepting payments, with more to come.

Click Here for the Payment Processing Products & Services Guide

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