Top Tips: Make alternative payments work for your e-commerce site
With the new credit card bill potentially making plastic an option for fewer people — including those under age 21 and those without good credit — e-commerce retailers are offering more alternative payment methods, which are becoming more and more attractive when shopping online. There are a wide variety of options available, from online cash payment and billing services to prepaid cards, including eBillMe, Bill Me Later, PayPal, Bill2Phone and GreenDot.
So what should marketers keep in mind when it comes to choosing and promoting alternative payment methods? Bala Janakiraman, principal product manager, Litle & Co., shares his top tips.
Define your objectives.
There are a variety of alternative payment options, from cash-based products to e-checking, so Janakiraman says the first thing retailers need to do is figure out their objective — what problem are you trying to solve in terms of payment? Are you trying to bring in new business? Or are you trying to retain existing customers and increase their average order values? “You have to think about if your customers are getting their plastic cut with the credit downturn in the market,” he says. “Is your customer base switching from a credit-based to a cash-based payment approach?” Asking yourself these questions will help you figure out which alternative payment methods will work for your audience.
See what payment methods you qualify for.
Just because you want a method of payment for your site, it doesn't mean the provider will offer it to you. For example, says Janakiraman, BillMeLater requires customers to bring in 20 million in card sales, so it is not the right answer for small businesses. On the other hand, it is easy to qualify for a service such as PayPal. Also, retailers in controversial sectors may have a harder time. “In addition to dollar limits, a lot of providers have acceptable-use policies, so they won't offer services to certain kinds of merchants,” he adds.
Use your leverage to negotiate.
Once you are approved, Janakiraman says it's time to negotiate. “Merchants don't realize that when it comes to negotiating they actually have a lot of power, because alternative payment providers depend on online merchants,” he explains. And it's not just about negotiating fees; you can also discuss the kind of marketing support the provider will offer. “PayPal has 60 million consumers, so you can ask what kind of support they can provide you with advertising – such as an e-mail blast saying you now offer PayPal. That's the kind of logic the merchant needs to work through, to figure out how the provider can get you those new segments,” he says.
Track whether you are really attracting new customers.
Most merchants do not do a good job of tracking whether an alternative payment method is really attracting new customers, he explains. “You could find you got 5% of your new business through PayPal, but if your Mastercard business fell 2.5%, what you have you done at the end of the day?” he asks. This is a “huge data point” merchants can go back to the payment provider with, especially if there were claims you would definitely boost revenues and attract new customers, he notes: “That's why metrics become important – if the provider said you'd get a 20% lift but that hasn't happened.”
On the other hand, once a merchant rolls out a payment method the retailer has to be patient, he says. “I'd say you need at least eight to 12 months to establish a baseline view and decide whether it's cost-effective and whether you should continue or cancel that method of payment,” says Janakiraman, adding that you don't want too many payment methods, since it can seem like extra noise to the consumer. “You just want two or three that are the most relevant,” he explains.