Alternative Payment Methods: Credit Based Proprietary APMs

Proprietary Credit-based APMs operate proprietary platforms that complete sales transactions by offering the consumer credit terms. They operate exclusively without the domain of the credit card networks. Examples of this type of APM are Bill Me Later®, PayPal Pay Later, and eLayaway®. Under this model, the APM grants credit and later invoices the consumer for any purchases. The APM then pays the merchant via ACH less any applicable fess. Generally speaking, consumers are granted credit during a brief application process the first time they check-out choosing that APM. Consumers may also apply for an account by going to the APMs Web site.

The term “apply” is important here because the consumer must be granted credit. The application asks for summary personal information such that the APM can quickly run the customer against a credit bureau or other risk assessment tools. According to most claims, the underwriting decision takes less than thirty seconds. Merchants must consider that some of their customers might be denied credit, which can result in abandonment. Also, credit inquiries at any of the major bureaus may affect a consumer’s credit score.

Once the customer has been approved he or she can use an express check-out process at participating merchants, which only requires an account number and a PIN. If the account number is stored locally on the consumer’s computer, then only PIN entry is required, making the check-out process much faster than the ordinary credit card check-out process. It should be noted, however, that many merchants have developed their own express check-out processes for returning credit card customers.

Like most credit-based programs (e.g., private label store cards), these APMs are effective when the consumer may not have the money, or may wish to defer from paying at the time of purchase. This allows merchants, for instance, to offer their customers 90-day payment terms. Solutions like eLayaway will allow customers to pay over time for their purchase – up to 13 months. If promoted correctly, these types of promotions offer merchants significant uplift.

Some or all of these APMs are available through established payment processors. Because these payment types operate entirely outside the credit card system, they tend to be the less expensive than credit cards, and the least expensive of the APMs. Expect to pay between 1% and 2% as opposed to credit cards which will easily cost between 2% and 3% plus a fixed fee.