Some of the largest e-commerce chains have suddenly started to embrace nontraditional payment methods, with one analyst group finding a 267 percent increase in such acceptance in four months.
The survey was completed by e-commerce consultancy Brulant, which released the full results from both its October 2006 and February 2007 surveys.
Brulant in October looked at the Web sites for the 100 largest online retailers—including Federated, Staples, Wal-Mart, Target, JC Penney, The Home Depot and Rite Aid—and logged what payment methods they accepted, according to Brulant analyst Stephen Morris. Nontraditional payment methods include Bill Me Later, Google Checkout and PayPal.
In February, 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 nontraditional 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 or debit cards such as those from MasterCard, Visa and American Express, the survey results do not suggest that consumers can take advantage of 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.
Patti Freeman Evans, who tracks retail trends for Jupiter Research, said the rapid increase is "not surprising" given the research her company has done.
Jupiter looked at just the top 40 online retailers—results that should have been skewed toward larger chains—and found that 33 percent of them supported alternative payments. Evans added that the survey was the first done by Jupiter, "so there is no trend data available."
"Bill Me Later, PayPal and Google Checkout have all been very aggressive over the last eight 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. Googles is the newest entry, having only launched nine months ago, and many in the industry have predicted that Googles move could open the floodgates. Brulants Morris suggested that Googles offering validates the alternative payment market and it may have helped Bill Me Later and PayPal make more inroads.
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The survey gave Google Checkout 5 percent of the Top 100 market, neck and neck with the much more established PayPal at 6 percent. Bill Me Later sharply outdistanced both, with a 17 percent showing.
"Its no coincidence that Googles 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 its likely just a matter of time before we see Googles market penetration here increase significantly as well."
The market is also shaping out to be an either/or arena, with 24 percent of the surveyed retailers offering an alternative approach, but none offering all three of the examined options.
Morris allowed for some other explanations for the sudden spike in acceptance, including the holiday shopping season. Since Brulant surveyed the sites in early October, the retailers 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.
In addition, 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 codes, state taxes and payment processing. In fact, the checkout process is often outsourced, putting the retailer at the mercy of whatever payment methods are accepted by its payment processor.
As for payment processors and alternative payment methods, Morris said, "some of them are slow to offer it. I just dont 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 "its not just payment—its the whole checkout process," he said.
Looking at the dollars spent by those alternative payment services, Morris said Bill Me Later users often spend more than the usual credit card user because its seen as a credit float. PayPal users typically spend less money than the typical credit card purchase because consumers who typically use such a service tend to be younger.
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