Internet Credit Card Use: Is End Nigh?
It wasn't so many years ago that secure credit card transactions via the Internet were a novelty.
Today this practice is commonplace, and early innovators of the concept, such as CyberCash, have multiple competitors.
But today's competition goes well beyond garden variety commerce service providers that simply process credit card transactions. It includes companies and services such as PayPal, Yahoo!'s PayDirect, InternetCash, and others.
Each of these companies is trying to accomplish one of two things: invent a new form of online payment or make the old methods more convenient by inserting itself as a middleman into the payment process, thereby removing the need for traditional merchant accounts.
Go With No Limits
Today's alternative payment companies don't limit themselves to enabling micropayments. This makes them practical for a wider range of purchases.
And because many offer merchants shelter from the onerous issue of fraud and chargebacks as well as unpredictable processing fees, their popularity is growing among merchants.
So many of these alternatives have sprung up in recent months that many people have begun to question whether traditional forms of payment are about to be phased out in favor of this new breed of money.
Could it be we're about to witness the demise of online use of the credit card? Do we find ourselves on the eve of its virtual destruction? Is card use on the Internet about to plummet in favor of new, better e-payment instruments?
My bet? Not even close.
Like Apple Pie
Not only are we not on the verge of the vanishing Internet credit card transaction, merchants should brace themselves for credit card-transaction volume to increase for the foreseeable future.
There are at least four reasons for this.
Increase in Internet sales. According to a 2000 study by Taylor Nelson Sofres Intersearch, 58 percent of Americans use the Internet. Of these, more than 25 percent had purchased online in the past month, and 19 percent planned to do so within the next six months. As Internet use continues to grow, so, too, will the number of purchases.
Simple economics. Most alternative payment services act as middlemen between merchants and merchant accounts. When you add a middleman, you typically add costs that must be offset through fees, advertising and the like.
For some merchants, the added value is well worth the minimal added costs. But with added costs and added customer service problems, such as PayPal's recently reported fraud and freezing of funds, it's unlikely that any one alternative payment method will unseat charge cards as the de facto standard for Internet payments.
Credit cards mean power. Credit cards are powerful tools in the hands of savvy consumers. Not only do they enable consumers to wield expanded purchasing power, they carry consumer protections that are as of yet unmatched by alternative payment methods. Witness the rise of escrow services and other forms of purchase insurance to accompany these new payment methods.
Credit cards are familiar. Credit cards are as much a part of the American psyche as jazz, apple pie and Kool-Aid. They come in styles and colors to match our personalities. They're simply ingrained in our heads. And they're everywhere: Merchants know shoppers are likely to have credit cards, and shoppers know merchants are likely to accept their cards. This is not yet the case with any one alternative method.
Consumers will need acceptance online and off-line, security and fraud protections and possibly even incentives before new payment services will become ubiquitous. The service that solves this chicken-or-egg problem by bringing those factors together the quickest while retaining power for merchants will be the winner.
All this does not suggest that newer alternative payment technologies lack a place on the Internet. Many solve a number of important problems, especially for smaller merchants and auction site users. But to go so far as to say these new systems will rapidly cause serious decline in credit card use is wrong. It's nothing more than a reincarnated version of the same claim made decades ago that credit cards would cause paper checks to become obsolete.
So what payment systems should you accept on your Web site? That depends entirely on your objectives. How big do you want to be? What do you sell? To whom do you sell your goods and services?
Alternative payment systems present handy ways for merchants to quickly accept credit cards. As a result, they're ideal for merchants whose businesses are small, who make only a handful of sales every month, who can't obtain traditional merchant accounts, or who need the value-added services payment alternatives provide.
Serious merchants with an eye toward growth will best satisfy the bottom line by accepting credit cards directly rather than requiring the use of third-party services.
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