Deferred Payment Goes Mainstream

Alternative payment options, or non-card payments, are more in demand than ever before. Originally used on auction sites such as eBay, they now are gaining popularity with other online merchants as well.

Giving customers variety and choice is key to being competitive, said Sucharita Mulpuru, VP, principal analyst at Cambridge, Mass.-based Forrester Research, during a presentation at the 2009 eTail East conference in Baltimore in August.

“Online shoppers are gravitating toward payment processes that involve fewer keystrokes and don’t require credit-card numbers and information,” she said. “The fact that retailers ask for less information during this process gives people an extra sense of comfort.”

Some alternative payment providers, such as Timonium, Md.-based Bill Me Later, enable shoppers to make purchases quickly and easily, using top-of-mind information.

Here’s how it works: After shopping online, customers can select the Bill Me Later option at checkout and answer two quick questions, such as date of birth and the last four digits of their Social Security Number. Shoppers receive monthly statements from Bill Me Later. More than 1,000 U.S. merchants, including PETCO, Wal-Mart and Overstock.com offer the service.

The Bill Me Later option also offers deferred payment and financing options. If a shopper prefers to have more time to pay, she can select the “No Payments for 90 Days” offer at checkout. The company offers credit through CIT Bank in Salt Lake City.

Previously, “people thought this might be a product for customers with bad credit,” said Brad Wolansky, VP global e-commerce, The Orvis Co., Manchester, Vt. But “it became apparent over time that it’s quite the opposite for our customer base.”

Orvis.com is among the early adopters of Bill Me Later and has reaped big profit over the years thanks to the payment solution.

“To be honest, we went into it kicking and screaming because we didn’t believe what it could potentially do for us,” Wolansky told conference attendees. “But we did a test run on our site for a few weeks four years ago and haven’t taken it off since.”

After only a few months, the retailer saw a significant lift in the average order value. Orvis.com still continues to see this increase.

“If our average order purchase is about $150, customers that use the Bill Me Later option spend about $175,” Wolansky said. “And better yet, our 90-day seamless cash promotion pushes the average order somewhere just south of $400. It’s been incredible.”

Another multichannel retailer, Jewelry Television, a shopping network reaching 80 million households, with one brick-and-mortar location and a strong e-commerce presence, reported a similar experience. When the company started down the path of alternative payments with Bill Me Later, it had no idea the practice would become such a significant part of the business.

“But over time, we saw our order values increase more than 25% from those who used the preferred payment account,” said Tim Engle, senior VP strategic initiatives, JTV.com , Knoxville, Tenn. “And the biggest surprise was that order frequency jumped more than we could have imagined in terms of ordering more often as a new customer.”

Jewelry TV now has more than 50,000 alternative payment accounts.

“Retailers that don’t already have alternative payment solutions on their sites should look into it soon,” Engle said. “As they say, there’s really no time like the present to start thinking about the future.”