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Shoppers Shun Credit to Pay with Digital Dollars

19 February, 2011



Deborah asks: I dont feel safe paying with my credit card online. What are some alternatives?

As the digital age marches forward and online shopping further threatens brick-and-mortar dominance, shoppers are making a deliberate move back to an old standard of the storefront register: Cold, hard cash.Major players in the virtual realm tout alternative payment methods in the name of convenience, security and privacy, giving debt-weary consumers numerous ways to pay with cash.

By championing the safety of such systems _ little personal info is exchanged and money is often pulled directly from a bank _ merchants are tapping into a new pool of customers previously turned off by the idea of exchanging info online. In fact, according to the National Cyber Security Alliance, 64 percent of Americans have abandoned an online purchase because of concerns over privacy.

Its a trend retailers want to see changed, pronto and the cash-fueled movement is one way of doing this. Its a much different and safer way to pay than by credit card or through wire transfer, an old standby of scammers.

iTunes, Zappos and Sears all use the eBay-owned PayPal service, arguably the largest and most well-known alternative payment option. PayPal added one million new accounts each month in 2010 and now serves over 87-million people globally, according to the eBay fourth-quarter earnings report.

PLAYERS IN THE ONLINE PAYMENT ARENA

Its little wonder PayPal is the most recognized and widely used cash payment system for everything in cyberspace. The company was founded in 1998 and, with the exception of now-defunct BidPay, had the market largely to itself for years. It offers full fraud protection on every purchase, boasts a relatively simple interface and requires no credit check. Clients pay only with the money they have, meaning no loans.

In the rapidly expanding global economy, PayPal has another major advantage: Dedicated websites for 20 countries worldwide and the ability to pay in 24 different currencies. This is a boon across the board, not only for international customers who want convenience but also merchants who want to turn away as few shoppers as possible.

But PayPal isnt alone. The Web is teeming with payment systems. Legitimacy, however, can be an issue. Service charges are one simple litmus test. If an outfit charges you to open or maintain an account, even with a guarantee no money is loaned, chances are its a shill.

EBILLME.COM

Founded in 2005, eBillme.com is a relative newcomer but gained ground on lesser competitors when it hooked up with Amazon last October to give customers trustworthy direct payment service. Now, its supported by over 800 online stores, including Foot Locker, Home Depot and Dell.

The outfit is a cross between an online payment service and a Web-based store. eBillme.com doesnt sell anything specifically, but consumers can shop directly through its site. Occasionally it offer deals and discounts, but theyre rarely different than the ones you find with coupons or by shopping direct from a merchant store.

Like PayPal, eBillme.com acts as a secure buffer between your personal info and the Internet at large. After registering through the company website, you can add eBillme to a list of trusted payees at their bank or credit union, just as you would with a mortgage. eBillme sends an e-mail after every purchase with the amount owed and instructions on payment. From there, you transfer money directly through the bank, as if paying for rent or utilities. The system requires online bill payments, but most major banks have long supported such features.

The service also offers relatively extensive fraud protection and runs an office in Canada for northern consumers.

GOOGLE CHECKOUT

Google Checkout is yet another branch of the ever-growing Google empire. Although its still a third-party system , it feels more accessible because shoppers simply log-in to a preexisting Google account to use the service. Unlike the other two, Google Checkout leaves fraud protection up to the merchant, so no help in that arena. It gives the ability to pay by credit or debit, but no option to link directly with a bank account.

For those who prefer to comparison shop by specific item rather than store, the Google system is a godsend. Say you search for a TV: A list of places pops up offering that TV, along with the price and merchant name. If a certain site uses Google Checkout, a button appears directly next to the product. Click once to buy the item and know the store is certified as safe by Google.

Other services already have a stranglehold on major stores, so Google Checkout has tailored itself to smaller fish like Golfballs.com and Coffee Bean Direct. Google recently added a create your own store feature in the same vein as Etsy retailers. Now anyone with a few buttons or repurposed bags to sell can craft an online store , and let Google take care of payment.

THERES AN APP FOR THAT

At the same time its becoming easier to pay with cash online, a handful of trend-setting physical stores accept dough in digital form.

Starbucks, always a purveyor of cool on a mass scale, is one of the first companies to embrace mobile payment company-wide at all 6,800 U.S. locations. The Starbucks Card mobile application for iPhone and Blackberry works like a gift card: Pull the app up on your smartphone, let the barista scan or enter a code at the register, and enjoy a cup of Joe sans digging for cash. The card can be synced with PayPal or a bank account and reloaded at any time, either manually or automatically, when the balance dips below a certain point.

Its a matter of time before a slew of similar apps take off; the latest round of Android phones come equipped with near-field communication chips, which allow users to pay by waving their phone near a receiver. Independent developer Giftango already makes an app to automatically organize and use e-gift cards from clients such as Lowes, Target and Fandango.

These apps are all part of a mobile wallet concept many tech-gurus predict will catch hold in 2011 _ a sort of all-in-one digital depository for everything money-related. Unlike the average leather wallet, this virtual version will likely be bare of credit cards, bursting instead with more reasonable payment options like gift cards, debit cards, store loyalty cards and coupons.

The whole idea is very sci-fi, but the barriers to mobile payment are already being broken. Smartphones, with their ability to access the Internet and display scannable codes, are a key part of the movement. According to Feb. 8 release by comScore, one-in-four mobile users now own a smartphone. Saturation is imminent.

THE DEATH OF CREDIT

Why the sudden and mass mutiny against credit in all forms? Much like the cash movement, its rooted in everyday consumer behavior.

Shoppers are sick of living in constant debt and, in return, are actively trying to make amends for past monetary slip-ups. A recent report by MSN showed the percentage of late payments at every major credit company fell during 2010. Even during the most robust holiday shopping season in several years, only 16 percent of consumers used credit cards on Black Friday, according to a survey by Americas Research Group. Statistics from the Federal Reserve show an increase of 2.5 percent in consumer credit during December. The increase, typical of the holiday season, capped off a relatively lax 2010 that saw a total drop in credit of 1.6 percent.

The percentage of Americans who no longer rely on credit is surprisingly high, particularly given the long-held and much-loved buy now, pay later mentality. According to a study published last September by Javelin Strategy & Research, credit card usage in 2010 was expected to dip below 50 percent, a sharp fall from 87 percent in 2008.

Credit cards arent the only target of consumer angst. BillMeLater, used by Walmart.com, Overstock.com and others, operates dangerously similar to a cash-based payment system and is occasionally mistaken for one. The outfit is basically a way to easily borrow money for any purchase and has fought numerous legal battles for overcharging in California. The most recent lawsuit alleged the company charged illegal late fees, as well as interests rates of nearly 20 percent. According to California law, only banks are allowed to charge more than 10-percent interest.

BillMeLater is another member of the eBay system, but the two operate fairly independently and the parent company can hardly be faulted for sins of the son. However, many of the top executives at BillMeLater have history in the credit card world, hence the sketchy lending practices. Its now officially associated with a Salt Lake City-based bank and able to sidestep most of legal issues it has had in the past.

This new-found adversity to unhinged spending isnt the only cause of a credit downfall. Despite the federal governments best efforts to protect consumers from devious fees with The Credit CARD Act, providers found ways to eke every last cent out of their clients. In the end, enough was enough.

Many consumers are glad to see a silver lining on the credit cloud, one that in past years weighed down the average family in almost $16,000 of debt. Merchants hope adopting simple, cash-based systems will ease consumers who have long felt at the whim of fickle retail overlords. No matter what Americans learned over the past few years, one lesson was long overdue: Namely, spend only the cash you already have on hand.

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Publication date: 2011-03-02

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by Kate Waylen



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