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Change is a constant in e-commerce, and that’s certainly true when it comes to the best ways for online retailers to accept payment.
Developments outside of online retailing have had big impacts on how consumers think about online payments. The recession has left many consumers with maxed-out credit cards looking for alternative ways to pay, while highly publicized data breaches have added to consumers’ concerns about typing card numbers into retail sites.
“Consumers are saying they want alternative payment options to credit cards for shopping online that offer them more flexibility when it comes to paying the bill because the credit crunch has reduced the limit on their credit card or they have suffered a financial setback due to the recession,” says Bill Roese, a senior vice president for payment service provider ClearCommerce/Certegy. “But they have to be secure.”
And there are changes from the retailer side, too. For example, more North American e-retailers are shipping to consumers in other parts of the world, raising a host of new issues related to payment acceptance.
On all these topics-alternative payments, security and global reach-payment processors have developed expertise that can help online retailers achieve their goals. And processors also can help cut operational expenses, one goal that is constant for online retailers.
Finding the right processor requires online retailers to understand the issues and the latest offerings from payment service providers.
One issue of growing concern to Internet merchants is how to comply with the ever-changing and increasingly strict payment security standards from Visa U.S.A., MasterCard Worldwide and other major card companies that have joined forces to mandate retailer compliance with the Payment Card Industry Data Security Standard, or PCI. The PCI standard includes requirements for security management, policies, procedures, network architecture, software design and other protective measures.
As part of these requirements, larger retailers and processors must undergo regular security audits. As a result, compliance is not a one-time expense, which is why an increasing number of retailers are looking to outsource storage of their customers’ transaction data to their processor. By doing so, retailers can lower their compliance costs, since it is the processor that undergoes the security audits for data storage.
At the same time, small and mid-sized retailers are turning to processors for more security tools to upgrade their web sites and the back-office infrastructure through which transaction data passes. The reasons are twofold. First, the card companies’ PCI security mandates that now apply only to the largest retailers are expected to filter downstream soon to smaller merchants. Second, most retailers do not want to risk a potential breach anywhere in their business and suffer the negative publicity that would follow.
A major worry is that hackers might find their way into a retailer’s payment platform as customer account information is in transit between databases, possibly through indirect paths, such as through vendors with which the retailer does business. A vendor may unwittingly open a hole in its network through the addition of an application, for instance, or by adding another page to a web site or entering a new employee access code.
“Security is the big stick right now for processors,” says James Bullard, group manager, product development, for transaction processor Chase Paymentech. “Retailers want to be sure they have no holes anywhere in their platform that hackers can exploit. It’s an expensive undertaking, which is why they are looking to processors to help them navigate security issues and reduce associated costs.”
New ways to pay
Retailers also are looking to processors for help in providing alternative payment methods to offer customers.
Between the recession and the credit crunch hitting consumers, many e-retailers of more expensive goods are seeing credit card volume go down and more shoppers requesting alternative payment options with more flexible payment terms, according to Bala Janakiraman, principal product manager for processor Litle & Co.
“We have one retailer that added BillMeLater as a private-label product in November 2008 because of the flexible payment options it offers consumers, such as 90 days no interest, and by February 2009 it was the second-ranked method of payment based on transaction volume,” he says.
“Retailers have to think more about adding payments that match the needs of new and existing customers if they want to boost sales in this economy,” Janakiraman continues. “Flexible payment options deliver more control to the retailer to offer incentives that can grow their business.”
This is particularly important for e-retailers that are expanding globally. They are discovering that many shoppers in other countries prefer alternative payment options that have a local flavor, such as allowing a shopper to pay for the purchase in cash at a local bank that is part of a processor’s clearing network.
One reason some consumers prefer to pay in cash is that they have neither a credit card nor checking or savings account that can be directly debited through the automated clearing house (ACH), an interbank network for settling payment transactions.
“Cash is a popular, secure payment method in Japan, Russia and Brazil, and postal money orders are a trusted way to pay in China,” says Ron Vollebregt, chief operating officer of payment service provider GlobalCollect. “There are a number of consumers around the world that prefer to pay with cash, and retailers that sell globally must cater to those local payment preferences or they won’t get as high a conversion rate as desired.”
Retailers that do not offer the preferred payment methods in each market can lose up to 60% of local sales, according to Vollebregt. “Retailers need to be sure the type of payment methods offered appeal to the local customer base, or risk losing business,” he adds.
E-retailers selling internationally also should ask if their payment service provider offers alternative payment methods such as real-time bank transfers from a shopper’s bank account or the ability for a consumer to pay for an online transaction using cash, as both payment methods are popular outside the United States.