Alternative Payment Methods: Introduction
With the passing of The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 [H.R. 627/S. 414] many merchants will start looking more closely at accepting alternative payment types. This landmark bill, signed by the President in May 2009, will most certainly diminish the ranks of credit card holders, especially those under 21. What’s more, a crippling recession and a general tightening of credit due to the credit crunch, will further decimate credit card nation.
Three of the most popular APMs discussed are
Bill Me Later® (BML),
PayPal™ and
Google™ Checkout. Bill Me Later was acquired by eBay Inc. (the owner of PayPal) in November 2008. All three of these APMs have pros and cons of their own, as well as with respect to each other. All three of these APMs typically live up to most of their claims, but very importantly, not for every type of merchant.
Case studies have become a very popular marketing tool for these payment methods, as results – although generally positive – vary significantly between different types of merchants. Although most APMs make blanket claims, they are also very careful to supplement these assertions with some relatively hard facts based on real merchant experiences. It would therefore be safe to say that if your company’s profile and business model were similar to one of these case studies, then you should seriously consider testing the particular APM.
Typically, all of the major APMs make some of the claims listed below. This superset of claims was culled from the positioning statements of all the APMs mentioned in this article:
- The APM increases the merchant’s sales volume (sales uplift)
- The APM increases the merchant’s average order value (AOV)
- The APM increases the merchant’s checkout conversion rate
- The APM increases consumer purchase frequency
- The APM Lowers the merchants transaction fees
- The APM enjoys a large consumer base
- The merchant offers consumers a more secure way to shop
- The merchant offers consumers an easier way to shop
Generally speaking, the attractiveness of a particular APM will be related to the claimed benefits, not necessarily lower fees (also one of the claims). So, it behooves merchants to visit the Web sites of these APMs to understand the claims, and to verify these claims by speaking with merchants who already use the service.
Understanding APMs
Before looking at specific claims, we should understand how these APMs work. There are two basic types of APMs, and it is worthwhile to understanding how these schemes operate in comparison to the credit card networks: