Purchasing the perfect treasure online is becoming easier. But bankcard issuers and acquirers, along with our very own payments industry, could soon be ruffled by the proliferating new payment options that make this possible.
This issue was examined at a recent teleseminar presented by Western Payments Alliance (WesPay). It featured speaker Larry De Palma, founder and Chief Executive Officer of TDG-Phenix, who focused on the rise of alternative payments for online purchasing.
Alternative payment systems such as PayPal have seen remarkable growth in recent years; De Palma noted that e-commerce in the United States is projected at $116 billion for 2007.
Alternative payment solutions evolved in response to both consumer and merchant demand. Consumers needed new systems to alleviate their distrust of online purchasing. E-commerce merchants wanted to reduce shopping cart abandonment rates and lower their credit and debit card processing fees.
De Palma referenced studies showing a direct correlation between payment options offered to online customers and shopping cart abandonment rates: Shopping cart abandonment is less likely when shoppers are given a variety of payment options. De Palma said credit card use is declining, while debit card usage is on the rise and e-checks are growing in popularity.
For De Palma, however, the risks to the banking world are a "seismic shift to RFID 'ism', losses in interchange revenue and customer deposits. Increasingly the alternative payment systems are occupying the space that has traditionally been occupied by the banks."
As more customers find new ways to pay for things without putting credit card or other information directly online, the risk is great to banks, processors and the entire traditional payments space.
De Palma demonstrated several products such as PayPal, Bill Me Later, Tempo Payments and Google Checkout. He said merchant processing fees are significantly lower using these systems in nearly every case.
Bill Me Later allows customers to purchase goods by sending a check at a later time. Upon completion of the purchase, the customer receives an e-mail confirmation with a secure link, login and user ID. A bill arrives in the customer's mailbox within 15 days, with a due date 25 days later.
PayPal's growth has led to massive market penetration, making it the first truly global payments system. It provides enhanced benefits to e-commerce merchants, including instantaneous payments, flexibility for recipients, simple record-keeping and competitive pricing.
PayPal also offers its own debit card and is able to process payments in 16 different currencies. PayPal account holders can even invest in money market funds through Barclays Bank. De Palma predicted alternative payment systems will continue to grow. In his estimation, PayPal alone could be seen as "the number one risk to the banking world."
De Palma also discussed the decoupled debit card. Introduced by Capital One Financial Corp., such cards permit customers to debit their checking accounts for purchases much like a traditional debit card. But Capital One _ not the account holder's own bank _ rakes in the processing fees. The cards are often attached to rewards cards. All of this could roil the entire banking industry.
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