A few weeks ago, I began my annual review of alternative payment systems (see Part I). Today I continue my list of features merchants should consider when selecting an alternative payment system. The complete list would take multiple columns, so I'm cherry-picking the most important features. To see a more exhaustive treatment of this topic, please see the epilogue to The E-Commerce Arsenal.

Non-Repudiation
The major problem for online merchants is the inability to verify that the buyer with a card number is actually the authorized cardholder. In fact, even if the rightful cardholder is paying, consumer protection laws in the United States make it possible for him to deny having made a purchase after the fact. Simply, online merchants have no way to prove a given customer was in their store making the purchase with the credit card. Non-repudiation is shorthand for a system that plants some sort of secure cookie or certificate on a shopper's computer so that when he checks out, the store knows that the customer is who he says he is. SET (secure electronic transactions) was one standard that would have provided non-repudiation for merchants. However, the onerous burden for consumers of maintaining a secure certificate has made SET an idea whose time may never come (for more on SET, see Building SET Applications For Secure Transactions by Mark Merkow).

Fraud Protection
It's impossible to prevent fraud, but an alternative payment system should, at the very least, reduce the possibility of fraud. Passwords, secure cookies or certificates, and scratch cards are all good ways to minimize fraud.

Dispute-resolution Process
The system should have a merchant-friendly resolution procedure in place. Some micropayment solutions for digital content, for example, permit merchants to set parameters so that purchases up to a certain amount can be cancelled by the purchaser after they've taken place without any intervention required by the merchant. For a $2.95 article download, for example, the cost of a call to customer service to reverse the charge wouldn't make sense to the merchant.

No Need to Have a Merchant Account
Surprisingly, some of the "alternative" payment systems I've reviewed have expected merchants to have merchant accounts. While it is the case that many merchants will have merchant accounts, at about $25 per month plus transaction fees, they may not be cost effective for very small businesses - especially since multi-channel businesses will typically have different accounts for their Web business and for their store business. Also, even a little fraud can be a huge problem for a very small business, since chargeback fees and penalties can quickly swell into the thousands of dollars. For many small merchants - crafters and other producers of specialty items - merchant accounts are a liability. A true alternative system will permit merchants to skip the headaches of a merchant account.

Setup Process
The days of six-week implementations are long gone! Alternative payment system providers are essentially ASPs (application service providers) who process money for you. Expect implementation to take a week or so, and expect to make minimal and simple changes to your own site. If your existing Web hosting company, which hosts your shopping cart, already has a turn-key alternative payment system installed, then you're in luck. Just make sure the payment system they offer measures up to the other criteria.

Quick Access to Funds
Money should be available within a couple of days after you ship the products. Sooner is better. You sometimes have to accept a higher discount rate for seeing the money sooner. You should never have to wait 30 days to get paid.

Types of Payment Systems
There are basically five different types of payment systems: same-as-cash stored value accounts, self-recharging accounts, hardware-based stored-value accounts, micropayments, and billing to a phone bill. In some cases, the type determines the audience, such as micropayment systems, which are generally preferred for digital content. As I mentioned in Part I of this series, there are fewer vendors in this space than there were a year ago. If you're familiar with one I'm missing, please let me know. I will endeavor to review the major players in each category within the next year. Some of them already have reviews, which will be updated to reflect their current features.

Same-As-Cash Stored Value Accounts
If your target audience typically pays with cash, then you'll need to implement a payment system to which they'll have access. With these solutions, you want to make sure the same-as-cash cards have a wide distribution network in the brick-and-mortar world. It doesn't do you any good if your customer has to have a credit card to purchase the same-as-cash card. Vendors include: InternetCash, InteractivCash (formerly Chargit PrePay), VisaCash, PocketPass, and CubeCard.

Self-Recharging Accounts
These accounts rely on the buyer associating either a checking account or a credit card number with the vendor. The vendor debits the associated account when the customer purchases from them. Vendors include: PayPal, iPin, Achex, and Qchex.

Hardware-based Stored-Value Accounts
These systems are having more trouble taking off, since special hardware is required on the part of the buyer. On the other hand, non-repudiation is a non-issue when hardware is part of the purchase. Vendors include: Wave Systems, Visa Smart Card, and Mondex.

Micropayments
If you're delivering digital content such as articles or music, you may need to charge small amounts. In that case, a $.20 per-transaction fee might be less attractive than a percentage fee. Micropayment systems are designed for small value, high volume transactions. Some even handle DRM (digital rights management). Vendors include: Qpass, MicroCreditCard, and Millicent.

Billing to a Phone Bill
The downside of billing a purchase to the phone bill is that receiving payments typically takes a long time for the payment system provider. The sooner you want to see your money, the higher the discount rate is going to be, since the provider is essentially paying you before he gets paid. Vendors include: eCharge Phone and ChargitDial.

Watch this space for developments in the fast-growing alternative payments sector. I didn't even get into payment options for the B2B space, but I'll be covering that over the summer.

Note to my readers who don't get the EBusiness Illuminator Newsletter: Internet.com has been sending out two weekly newsletters from me for about eight months -- this one and the EBusiness Illuminator. Together they have a subscription base of 10,000. Who are these people? For the most part, they are intelligent people employed in decision-making positions for companies of all sizes in the Internet economy, just like you. How do I know? I hear from many of you. My columns are typically only about 750 words and listing the company of every person who has written to me in the past year alone would take more than that. You'd recognize many of the companies as being those that supply the hardware and software your company uses.

Why am I bringing this to your attention? I think the subscriber base of these two newsletters (if you're only getting one, you're missing out -- click here to subscribe to EBusiness Illuminator) should be closer to 30,000. So I'm asking you to send this - or any other newsletter you receive from me that you enjoy - to three friends who you think will appreciate it. Have I really asked that much - other than that you question conventional wisdom - from you in the past two years?

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. Her newest book, The E-commerce Arsenal: 12 Technologies You Need to Prevail in the Digital Arena is now available. She can be reached at agutzman@internet.com