E-Commerce Credit Card Alternatives Soaring In Popularity

Written by Evan Schuman
April 12th, 2007

Some of the largest E-Commerce chains have suddenly started to embrace non-traditional payment methods, with one analyst firm finding a startling 267 percent increase in such acceptance in February, when compared with the identical survey done in mid-October.

The survey was completed by E-Commerce consulting firm Brulant, which also released its full results from both the October 2006 survey as well as the February 2007 look.

The survey was quite straight-forward, according to Brulant Principal Stephen Morris. The firm simply looked at the Web sites for the 100 largest sites?including Federated, Staples, Wal-Mart, Target, JC Penney, The Home Depot and Rite Aid?and logged what payment methods they accepted. Non-traditional payments were Bill Me Later, Google Checkout and PayPal.

Four months later, they went back to the same sites and did the same thing and found that acceptance had almost tripled.

Statistics, though, can be misleading, especially when the initial numbers are small. Although a 267 percent increase sounds like a landslide of non-traditional payment support, the survey also found that only 24 percent of the tracked sites offered any alternative payment.

With 76 percent of sites supporting only traditional credit/debit cards such as those from MasterCard, Visa and AmericanExpress, the survey results do not suggest that consumers can E-Commerce with no credit cards yet. Given that large retail chains are notoriously slow to accept fundamental changes, this is still a very significant development.

Veteran E-Commerce analyst Patti Freeman Evans?who tracks retail trends for Jupiter Research?found the rapid increase “not surprising” given the research her firm has done.

Jupiter’s numbers looking at just the top 40 online retailers?results that should have been skewed toward larger chains?found 33 percent of them supporting alternative payments. Evans added that the survey was the first done by Jupiter “so there is no trend data available.”

” Bill Me Later, Pay Pal, and Google Checkout have all been very aggressive over the last 8 months or so in terms of acquiring new retailers to feature their products,” Evans said, “so the increase is not wholly surprising.”

The data also reveals some trends between the three alternative payment methods examined. Google’s is the newest entry, having only launched six months ago and many in the industry have predicted that Google’s move could open the floodgates. Ironically, Google’s move validates the alternative payment market and it may have helped Bill Me Later and PayPal make more inroads as well as Google Checkout itself.

The survey gave Google Checkout five percent of the top 100 market, neck-and-neck with the much more established PayPal at six percent. Bill Me Later sharply outdistanced both, with a 17 percent showing.

?It?s no coincidence that Google?s successful track record in its various endeavors is making (alternative payment methods) more attractive to retailers who were previously resistant to implementation,” Morris said, “and it?s likely just a matter of time before we see Google?s market penetration here increase significantly as well.?

The market is also shaping out to be an either/or arena, with 24 percent of e-tailers offering alternative approach, but none offered all three of the examined options.

Morris allowed for some other explanations for the sudden spike in acceptance, including the holiday shopping season. When his people visited the sites in early October, they may not have launched all of their holiday services yet.

There are other factors at play as well. Retailers have generally been unhappy with the healthy transaction fees the major credit card companies have been charging, making them more open to the idea of alternatives.

But a practical matter is that the checkout process is by far the most complicated and error-prone section of any E-Commerce site, an area that has to rely on other databases for information such as shipping, Zip Code, state taxes and payment processing. That’s why the checkout process is often outsourced, putting the retailer at the mercy of whatever payment methods are accepted by their payment processor.

As for payment processors and alternative payment methods, Morris said, “some of them are slow to offer it. I just don’t think they see it as mainstream enough. Adding any more complexity to it is not something they can stomach.”

Before Google entered the space, PayPal was often incorrectly seen as something just for AOL users, Morris said. Google is also not quite the same as the other services because “it’s not just payment. It’s the whole checkout process,” he said.

Looking at the dollars spent by those alternative payment services, Morris said BillMeLater users often spend more than the usual credit card user because it’s seen as a credit float. PayPal users typically spend less money than the typical credit card purchase because of the nature of the consumers who typically use such a service, including a lot of younger consumers.


One Comment | Read E-Commerce Credit Card Alternatives Soaring In Popularity

  1. Ryan T Says:

    Every time I read an article from a US based publication regarding alternative payments the only ones mentioned are PayPal, Google Checkout and BillMeLater. There are dozens of other more popular “alternatives” to cards. For instance of all e-commerce payments in Germany only about 20% are card based and none of the above “alternatives” are used regularly there.


StorefrontBacktalk delivers the latest retail technology news & analysis. Join more than 60,000 retail IT leaders who subscribe to our free weekly email. Sign up today!

Most Recent Comments

Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

Our apologies. Due to legal and security copyright issues, we can't facilitate the printing of Premium Content. If you absolutely need a hard copy, please contact customer service.