Thursday, October 9, 2008
EBay Inc., parent company of online debit payment giant PayPal Inc., reached an agreement to acquire credit-based online payment provider Bill Me Later Inc. for $945 million. The reported goal of the acquisition is to help eBay increase revenue and expand its footprint into the brick-and-mortar world. But does this acquisition mean increased competition with ISOs and merchant level salespeople for merchants?
Theodore Svoronos, Certified e-Commerce Consultant for Irvine, Calif.-based Group ISO, said credit cards are the main crux of the payments space, but he sees Bill Me Later as a viable secondary payment methodology. "The upside for us, in the short term, is minimal. But this could create an unexpected competition that will force acquirers to change some of their marketing strategies and tactics."
Matt McDowell, Vice President of Merchant Services and Sales for CardinalCommerce Corp. said Bill Me Later is tied into 60 percent of the 500 largest e-commerce merchants, making them a significant player in the alternative payment market. But, in order for eBay to sell the Bill Me Later service to brick-and-mortar merchants, ISOs may be utilized.
"It would make sense for them to ultimately go through an ISO channel because we have the feet on the street," McDowell said.
CardinalCommerce, which facilitates the processing of PayPal and Bill Me Later transactions, has a software pipeline that sends Bill Me Later transactions to payment processors, specifically Fifth Third Bancorp, First Data Corp. and Chase Paymentech LLC.
Victor Newsom, Senior Vice President of Operations for Las Vegas-based prepaid processor eCommLink Inc., said it is inevitable that Bill Me Later, now with eBay's backing, will now implement value added consumer and credit services. In other words, it's time for acquirers and processors to consider new payment relationships.
"The Bill Me Later solution is one way of increasing throughput and adding value to their customer base, so you're going to start seeing more effect and impact on the acquiring side," Newsom said. "The marketplace is more fluid, and acquirers should look at more nontraditional methods of expanding their reach. Simply having a relationship with the retailer isn't the solution because it's simply no longer the only game in town."
Newsom feels acquirers have an opportunity to go on the offensive and expand their reach in ways that were not possible in recent years. "There is a threat because the rules have changed," he said. "Acquirers have an opportunity to go into the issuing space, cut costs and improve their own business models. The folks who don't change what they do today are the ones who are going to get hurt the worst."
Newsom believes there is nothing to stop acquirers from forging their own relationships with Bill Me Later, creating their own card products and cutting direct deals with payment institutions.
"Acquirers just need to think outside the box," Newsom added. "The value here is in information, the value of knowing who you are servicing. Acquirers are in a unique position to leverage those opportunities. They know their demographics and are closer to the end cardholder, and you would think [acquirers] are in the best position to create a new product or take advantage of a new opportunity."
But Svoronos noted that ISOs have leverage in the relationships they have already developed with banks and merchants.
"Consumers feel more comfortable when they are offered alternative payment options, and this bolsters spending," Svoronos said. "I don't think [eBay] will ever take the market share that we have. New merchants may start off with a PayPal or Bill Me Later, but when they grow to that next tier and start making money, they're going to need a merchant account through an ISO channel."
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