A week ago I promised to cover alternative payment options in a column this week. In that column I explained the reason that merchants banks rarely give merchants a chance to contest chargebacks (the industry term for when a customer contests a charge that appears on his monthly statement). The reason being that current consumer protection laws give all the power to consumers. In light of the changes in policy that Visa and Mastercard have made towards immediate-fulfillment Web sites, and the outrageous charges that these sites are likely to incur as a result of chargebacks, I began to review (with the help of many readers who sent in to me their preferred solutions) the myriad solutions available as payment alternatives to Visa and Mastercard. This column will cover the various options available to merchants and to consumers as far as alternate payment methods go. Subsequent columns will cover the solutions in greater detail. If you don''t see your favorite solution listed at the end, please drop me a line and I''ll be sure to review it, so this list and the reviews are a comprehensive overview of the industry.
Credit Card-based Solutions
Several of the payment solutions I came across rely on the knowledge that consumers already have credit cards, but don''t necessarily want to give their credit card information to every site. These solutions are what I call credit card surrogates. The best well known of these is PayPal, which is the payment method of choice on eBay. Credit card surrogate solutions act as an intermediary between the buyer and the seller. Paypal will accept a payment from anyone with a working e-mail address for anyone with an e-mail address. Payments can be made via credit card, personal check, or from an electronic funds transfer from the buyer''s bank.
While this solution is extremely convenient for buyers who already hold credit cards, and is a good model for consumer-to-consumer (C2C) payments, such as those required at auction sites, it''s not really an improvement, as far as I can tell, over credit card payments for business-to-consumer (B2C) transactions. In fact, it''s immeasurably worse. I''m sure of the 1,000,000 or so customers that PayPal mentions it has on its home page, I''m one of twelve or so who actually read the terms and conditions all the way through.
The degree to which I agree to give up my legally mandated consumer protection rights - including the right to cancel a purchase within three days and the right to initiate a chargeback if the goods are never delivered - is unacceptable.
I could not think of many businesses that would prefer this payment method to a credit card. Outside of C2C transactions, I could only reason that someone who didn''t have a credit card, or wanted to pay by check but was purchasing from a merchant who accepted a credit-card surrogate but not checks would benefit. I think that''s a pretty remote example. Despite the hype these solutions have received, I think that one class-action suit by consumers who, after the fact, decided they wanted to maintain their chargeback privileges is all it will take to put an end to this model.
I spoke with a lawyer I trust about the issue of a consumer agreeing to waive certain rights in exchange for the privilege of using a surrogate card. He told me that the courts have generally ruled that you can''t sign away your rights. Just as employers can''t make employment contingent on the agreement that you''ll never sue for sexual harassment, credit card surrogate companies will have difficulty defending their practice of making membership in their program contingent on the agreement that you waive your standard consumer rights thatapply to your credit card.
Cash Card-based Solutions
Another common model of payment options is the cash card-based solution. This model is geared particularly toward people who don''t own credit cards or toward those who don''t understand why using credit cards online is safe for consumers in the U.S. The consumer purchases a card with cash, a check, etc., from a brick-and-mortar merchant - or even a cash machine or kiosk, conceivably. The card is like a pre-paid calling card, with a unique identifier on it. The purchaser then activates the card on the issuing company''s Web site, and can enter the card number as payment information on any site that accepts that payment method.
There are no chargebacks for the merchant. Since there are no credit card companies involved - even if the card is initially purchased with a credit card. Since the card is swiped at a brick and mortar merchant, chargebacks are much more difficult to pursue unless the card never works. This is as close to paying and receiving cash as it gets for online merchants.
The downsides of this solution are that the customer has to leave the house - and interrupt his shopping experience - to purchase the cards at a store, and the merchant from where the consumer wants to purchase has to accept the correct type of card. Finally, these cards are generally sold in smaller denominations (up to $100), so larger purchases, such as computers, would require the consumer to purchase eight or more cards. The question remains: Do the sites that accept payments even permit shoppers to enter multiple card numbers? And up to what limit?
The fact that Mastercard is already in this space with their Mondex card, which actually holds money in multiple currencies and permits C2C transactions, is some indication that greater (or at least better-funded) minds than mine also think this is a winner.
The Hidden Details Payment System
The third category of non-credit card payments is the system where the buyer actually leaves the merchant site during the checkout process and enters his purchasing details - usually the account information for some virtual service that''s holding funds for him - into pages that actually reside on the site of the payment system itself. For merchants who are relatively unknown, this can increase a purchaser''s confidence that the merchant is legit and that his personal information is safe. The merchants receive confirmation that payment was made and return an order confirmation number to the customer at the end of the check-out process.
One site offering this service is WorldPay, which has a significant presence in Europe. WorldPay obviates the need for communicating with CyberCash or another gateway to the credit card processing network. I-Escrow also offers such a service. Whichever solution a merchant chooses, or both, since they''re not mutually exclusive, relies on the fact that customers have to have money sitting in server-based wallets at the relevant site. Chargebacks are not necessarily eliminated in this system, since the site has a relationship with the customer and doesn''t want to alienate him by having him get stuck with fraudulent charges or the charges for merchandise that is never delivered.
Products to Be Covered In Subsequent Columns
Stay tuned. In the next several weeks, I''ll be covering the following technologies in greater detail. If you''re familiar with one that''s not on this list, please drop me a line.
- eCharge Phone
- PayPal
- ATM Direct
- Ching
- I-Escrow
- WorldPay
- InternetCash
- Mondex
- NetBanx
(I won''t be covering merchant banks, processing services, or even processing services thatfocus on multiple currencies, so please don''t send me those.)
Alexis D. Gutzman is an E-commerce Technology Author and Consultant and author of The HTML 4 Bible, FrontPage 2000 Answers!, and ColdFusion 4 for Dummies. She can be reached at agutzman@internet.com
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