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Electronic Checkbooks


Alternative payment systems has been the buzz phrase for several months—whether retailers are providing private-label credit cards with same-as-cash benefits, wireless devices for self-scanning of cards by consumers (see news item on page 81) or multiple payment options for online checkout, the goal is to make transactions easier and more secure.

Now the hot trend is for retailers to leverage the consumer’s comfort level and prolific adoption of online banking to enable direct transfer of funds from the shopper’s bank account to the merchant—essentially a virtual debit-card transaction.

The time is certainly right for this transition, according to the Consumer Bill Payment Survey, conducted in January by Harris Interactive and The Marketing Workshop on behalf of CheckFree Corp., Norcross, Ga. Survey results determined that online bill payments now exceed payments made by paper check and, among the 2,018 online respondents polled, more than 74% of U.S.-based households pay at least one bill online each month. Adoption of online bill payment has doubled in the last five years, when only 37% of respondents to a January 2002 survey reported they paid at least one monthly bill online.

As more consumers shift to paying their bills online, the demand for virtual “debit” transactions grows. Merchants that offer consumers the option of paying online directly from their personal bank accounts realize a number of benefits. For instance, shoppers who either don’t have credit cards or who prefer not to pay online with a credit card are quick to embrace electronic bank transfers.

In January, TigerDirect added the Secure-ebill payment option from MODASolutions to its e-commerce site so that shoppers could pay for purchases online from their bank accounts.

“On average, merchants that deploy this payment option see a shift of 2% to 6% of sale transactions go through the electronic service,” said Marwan Forzley, president and CEO of Ottawa, Canada-based MODASolutions, which facilitates the transactions between consumer banks and merchant banks.

“A significant number, anywhere from 30% to 60% of consumers who pay with the Secure-ebill, are new customers for the merchant,” he added.

There are also substantial savings for the retailer, with the processing fee for electronic bank transfers averaging 1% to 1.5% of the transaction vs. 2% to 3% for processing credit cards.

Another advantage of the secure e-bill model is that the merchant receives the full value of the sale at the time of the transaction. The money transfers directly from the consumer’s bank account to the retailer’s account, and then the retailer pays the transaction fee.

Shopping convenience: Consumers who are paying bills online do so because they have a higher level of confidence that the transaction will be secure and because it is more convenient and efficient than mailing checks. As online banks become a frequent destination for consumers, retailers have an opportunity to provide a convenient shopping moment.

Online Resources, an online banking and bill-payment service provider based in Chantilly, Va., is offering retail gift cards through its banking applications.

The company’s CardHQ service resides inside the online banking application. When a consumer goes online to pay her bills or check her bank account, options to purchase retail gift cards appear in banner ads on the screen. Currently, Online Resources has agreements with at least 10 national retail chains including Best Buy, Eddie Bauer, J.C. Penney, L.L. Bean, The Sharper Image, Starbucks and SpaWish.

“We believe in most cases the person paying the bills in the household is also the person who is purchasing gifts for special events,” noted Dan Thomas, senior VP, strategic development for Online Resources. “On average, people are visiting their online bank sites eight times each month, and that’s a lot of opportunities to sell gift cards.”

In the first phase of deployment, Online Resources is hoping to determine if it can change consumer behavior to encourage shoppers to visit their online bank when they need a gift card.

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