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www.ecommerce-guide.com/solutions/secure_pay/article.php/3339931
By Susan Kuchinskas April 13, 2004 While selling products to consumers and allowing them to pay for it later -- or in installments -- might seem a risky way of doing business online, the concept is gaining steam thanks to I4 Commerce's "Bill Me Later" solution. The service has netted the Timonium, Md.-based payment service provider a number of high-profile retailers as clients, including, most recently, multi-channel consumer electronics retailer TigerDirect. Beginning later this month, TigerDirect's online shoppers will see the "Bill Me Later" option at checkout, along with the option of using a major credit card. To use "Bill Me Later," shoppers provide their name, shipping address, birth date and the last four digits of their Social Security Number. Online merchants using "Bill Me Later" essentially hand-off the transaction to I4 Commerce, which authorizes each purchase in about three seconds, it said. It settles with the merchant in two days, and then bills the customer. The consumer can pay in full within 30 days, or choose to make a minimum payment and finance the rest of the transaction. "We think this is a great option because it gives customers flexibility," said Bruce Matthews, vice president of business development for Miami, Fla.-based TigerDirect. "Instead of us choosing the way you have to pay, we want you to buy from us the way you feel most comfortable." TigerDirect also supports payment via PayPal. TigerDirect features low prices on limited quantities or factory closeouts, so "Bill Me Later" lets customers take advantage of hot deals that may be gone before their paycheck comes, Matthews said. While the preferred method for online shopping is still credit cards, "Bill Me Later" provides merchants with a viable alternative for those consumers who don't have a credit card or don't want to use it because of security fears, said Jupiter Research analyst Bruce Cundiff. According to a recent Jupiter survey, 73 percent of consumers chose to use credit cards, followed by 27 percent who chose a debit card, 23 percent who liked PayPal, and 16 percent that preferred the "Bill Me Later" option. "I see 'Bill Me Later' as more of a convenience solution than a security [option]," Cundiff said. "The hook is definitely 'pay later.'" Merchants benefit from the possibility of easier sales. According to the company's press materials, Hotels.com found that the average transaction by "Bill Me Now" users was 10 percent higher than that of credit card users, while it had a 35 percent incremental increase in sales, thanks purely to those who had credit cards but chose to use "Bill Me Now." Cundiff said it's also an excellent option for merchants because -- as long as they follow I4 Commerce's guidelines -- I4 will assume the risk, while credit companies stick the merchant with much of the cost of fraudulent transactions. Because fraud is a much bigger issue for merchants than for consumers, Cundiff said, "Merchants probably love this. They [I4 Commerce] seem to be filling a niche right now, and the merchant base has been growing " I4 Commerce makes money from finance charges and by charging merchants a transaction fee that's less than what credit card issuers charge them. Mark Lavelle, vice president of business development for I4 Commerce, said that fewer consumers using "Bill Me Later" finance their purchases than those using credit cards. While the option of letting customers pay later could prove to be a good marketing tool for merchants, it's not proving to be a deadbeat attractor, Lavelle said. He said the average consumer using the service has 4.5 credit cards, and a very high credit score. One way I4 Commerce limits its risk of fraud is by carefully selecting online merchants that have mature operations with excellent fraud controls in place. "We're not everywhere you want to be... we're everywhere we want to be" he said. Other large-scale I4 customers include Hotels.com and 1-800-Flowers.com. Safety in Numbers?
Joanne McNabb, chief of the California Office of Privacy Protection, said her organization believes that using merely the last four digits of a Social Security Number in an online transaction can be problematic. That's because a partial SSN is typically provided along with other personal information, which could be aggregated to enable hackers to access personal records. ARS analyst Jennifer Gerlach said she hasn't seen a big demand for "Bill Me Later" among retailers because of the security issues. "With identity theft becoming rampant, putting in the end of someone's Social Security Number is going to be very dangerous," Gerlach told internetnews.com. "They'll need to do a lot of research and provide proof [it's safe] in order for consumers to give up part of the Social Security Number." Chris Hoofnagle, associate director of the Electronic Privacy Information Council, a Washington, D.C. public interest research organization, said it makes more sense for consumers worried about identity theft to use a credit card number than part of their Social Security Number. "You take on less personal risk by just using a credit card number," he said. "Under Federal law, you're limited to $50 worth of liability -- and all credit card companies have waived that." On the other hand the last four digits of the Social Security Number are the only unique digits. The first numbers correspond to the state in which the number was issued, while the middle two digits are group numbers tied to when the number was issued. "The last four are actually the most sensitive," Hoofnagle said. That might be so, but Lavelle said consumers have yet to expressed significant concern over privacy issues involved in "Bill Me Later." He said consumer surveys and tests before the launch of "Bill Me Later" showed that Social Security Numbers "are not something consumers feel is extremely worrisome about giving out." Susan Kuchinskas is a senior editor at internetnews.com, where a version of this story originally appeared.
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