Answer: Offer alternative payment options
Okay, so what exactly does that mean? Well, traditionally, merchants only had the option of accepting electronic payments online in the form of bank drafts, and debit and credit cards from the major card brands – Visa, MasterCard, American Express, Diners Club and JCB. That is until payment product innovators discovered that merchants were losing potential business from consumers who did not have bank accounts or credit cards. Most importantly, in the ecommerce space, some consumers are simply wary of using cards and bank account information for online transactions because of the fraud risk. Most of this concern stems from consumers’ lack of trust in web site security. Additionally, with card companies cutting cardholder credit limits, alternative payment methods are the only option.
Merchants: Think Outside the Credit Card Box
Merchants not offering alternative payment options online are limited to accepting cash, money orders or checks from those customers. Checks require clearing and cash can only be paid in person. Those options can delay revenue (or limit or restrict revenue in the case of a check not clearing) for the merchant. Merchants offering payment alternatives reach a wider consumer base and satisfy more customers as a result.
Merchants operating ecommerce portals should consider two avenues when researching and implementing alternative payment options:
PayPal™ has a large consumer base of roughly 227 million users. Bill Me Later® was acquired by eBay (PayPal’s parent). RevolutionCard™, the first PIN-based credit card, is not embossed, so no personal data is stored on it. There are smaller players in the market as well, but they have yet to take as much hold as these industry leaders.
Click and Buy, a payment system based in London, offers 126 different currencies and 46 different payment methods to their merchants. According to an alternative payment study conducted by YouGov for Click and Buy, more than 50% of regular online shoppers will cancel a potential purchase if their preferred payment method is not available. Although U.S. online retailers are not pressured as much for foreign currency acceptance (major brands are accepted internationally, but cardholders are charged foreign exchange fees), it would certainly enable a merchant to grow globally.
Ecommerce merchants are becoming favorable to alternative payment offerings, simply to reduce their expenses in relation to interchange fees, which have risen 25 to 90 percent (depending on card type and a merchant’s business operations) over the last 20 years. PayPal doesn’t pass along interchange fees and Revolution Money’s RevolutionCard saves merchants money by charging no interchange fees and lower processing fees per transaction than major card brands. Merchants are turning these savings into loyalty and cash-back programs for their customers.
Looking Forward: The Future is a Bright Alternative
Innovation in alternative payment products has been primarily outside the banking world. Research consulting firm Celent estimates that by 2012, banks will see a decline of $1.2 billion in interchange revenue due to increasing acceptance of online alternative payments. Banking institutions are adopting alternative payment options of their own – for their customers as well as merchants. Secure Vault Payments, a new payment solution, is now offered by NACHA, the electronics payment association that oversees the Automated Clearing House (ACH) network, (the electronic network for financial institution transactions in the U.S.) Labeled NACHA SVP, it is an up and coming contender in the alternative payment space. It is helping banks to retain customers and expand their merchant offerings. Still in its infancy, it has become popular in the education industry. The University of Georgia launched SVP in April as a new tuition payment option. Other educational institutions are following suit.