How Customer Research Can Sort Out Alternative Payment Choices

Online sellers trying to sort out the plethora of alternative-payments choices?and make decisions regarding which, if any, to accept?should begin by asking questions about what business problems they are trying to solve, a retail executive said at an e-commerce trade show on Wednesday. “Once you understand what problem you're trying to solve, many of these [alternative-payments] players start to shake themselves out,” Don McNichol, director of e-commerce for Intermix Inc., told the audience at the Internet Retailer Conference & Exhibition in Chicago. While Intermix has adopted some alternative payments, McNichol recounted problems the retailer has had with such issues as batch processing. He also cautioned merchants to be wary of integration issues and to treat skeptically processors' assurances that a particular payment program can be live in, for example, as little as three weeks. The advice comes as a raft of new players have emerged over the past few years to compete with the card networks and even with older alternative processors like PayPal Inc. This effusion of payment alternatives, relying as they do on a range of processing channels from the automated clearing house to credit and debit to the checking system?has left many online merchants scratching their heads as they struggle with rising card-acceptance costs and data-security issues but are unsure of which alternative, if any, to adopt. “Once we got our site up and running [in 2005], we realized there's a big trend toward alternative payments,” said McNichol, who joined the 15-year-old New York City-based chain of 24 women's clothing stores three years ago to jump-start its Internet initiative. Today, Intermix's site accepts the major card brands as well as Google Checkout and its own gift card. To better understand how payments could solve business problems, merchants should survey their customers to get a clearer picture of who they are and how they are arriving at the site, McNichol advised. If nothing else, the results could contradict a merchant's preconceived notions. “Often times, you find you're on the wrong path,” he said. In Intermix's case, surveys showed about 70% of customers were finding the site through Google searches. At the same time, the site was new, and the small chain was not a well-known brand, leading some customers to be wary of entering card data. This information led the company to adopt Google Checkout, which offers consumers an online wallet where they can store Visa and MasterCard credit card data for use at any site that accepts Checkout. “We saw there would be a good opportunity to partner with Google so people felt comfortable shopping with a small specialty retailer in New York,” McNichol said. Now, McNichol said, 9% of the merchant's orders are coming from Google Checkout. Nearly one quarter of those orders represent new customers. Similarly, customer research showed a gift card would make men feel more comfortable buying shoes and clothing on the site for wives and girl friends. “For us to move into the gift card business was fantastic because now we've extended our business to husbands and boy friends” who were otherwise daunted by the prospect of buying something in the wrong color or size, said McNichol. He said the chain's gift card now accounts for 4% of orders, with 68% of those orders coming from return customers. The card has also produced a 40% lift in average order value. Still, McNichol said there is much to be cautious of in evaluating alternative payments. “There's a lot of [alternative-payment] companies that haven't quite figured out their business model,” he noted, pointing out how a vendor may change its pricing model abruptly after getting a client to commit to its service. McNichol also pointed to the problem of batch processing, which creates difficulties for a merchant like Intermix that ships many goods for overnight delivery to meet customer demands. “Google [Checkout] does not do real-time pre-authorization of orders,” he said, which sometimes results in goods shipping before a decline comes in. The lesson, he said, is that merchants must work together to get alternative-payment processors “to pay attention to how we do business.”