Increase in Merchants Use of Alternative Payments Expected

Posted on August 1, 2006

Internet Retailer has an article about how ecommerce companies are facing rising costs from using credit cards. The costs include percentage fees from the Visa, Mastercard and Discovery, third-party processor fees and security fees. At the same time consumers are concerned about using credit cards because of online fraud. The result is merchants are hit with a double whamy of rising costs and consumer concerns. Because of this the article says use of alternative payments should rise.

These high costs of card acceptance and consumer concerns about fraud are prompting online retailers to look for less expensive and more secure alternative payment methods. The Internet Retailer survey found that 52.7% of those responding thought it was "very important" or "important" to provide an alternative payments program.

"We're starting to see competition with credit cards," says Avivah Litan, vice president and research director at consulting firm Gartner Inc., adding that merchants are looking at such alternatives as financing, prepaid cards and gift cards. She says that alternative payments could account for between 10% and 20% of volume within three years.

Schatt says he expects that alternative payment options could account for up to 26% of all online payments by 2009, up from 14% in 2006.

In any case, retailers need to think hard and long before implementing new payment options, says Alicia Berry, director of operations for DVD Empire. "There are all different kinds of problems and issues," she says. "You're dealing with other companies, other servers, all different kinds of people, turnover in sales people. Itís not an easy process."

Security has always been the most complicated and most expensive issue in ecommerce. If the credit card companies are going to push these costs toward the merchants then it makes sense that the merchants would start considering more alternative payment options.

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