Payments Changes at eBay Go Well Beyond Tossing out Checks

When eBay Inc. announced its all-electronic payments policy last month, the move triggered what an eBay executive calls a “mixed” response, at best, from the online marketplace's sprawling seller community. But the policy changes go beyond banning checks and money orders on eBay. They include requirements that will force third-party payments vendors, as well as sellers with merchant accounts, to integrate their payment systems with eBay's checkout process. And they have vaulted an 11-year-old processor in Orem, Utah, into prominence as the first provider other than eBay's PayPal unit to provide integrated electronic processing. Under eBay's new policy on checks and money orders, announced Aug. 20, sellers after late next month will no longer be able to list these options as payment choices. Current listings advertising these paper alternatives will be allowed to stay online until they expire. The new, all-electronic policy requires sellers to accept payments via credit or debit cards, through payment on pick up, or through two third-party payments vendors, PayPal and ProPay Inc., the Utah ISO. The new policy does not change eBay's stance toward Google Inc. and Amazon.com Inc., whose payment services the online auctioneer does not permit its sellers to use. Google and Amazon run operations eBay views as competitive with its own or with PayPal. Ebay has banned Google's Checkout online-payments service since it started in June 2006. The move away from paper stems from a need to provide buyers quick and safe transaction services consistent with what they see on other sites, says John McDonald, director of trust and safety for eBay. Paper payments account for less than 10% of eBay transactions, he says. And somewhere around 1% of sellers offer no electronic payments method, though McDonald says eBay doesn't release the precise number. “When eBay started 13 years ago, sending cash in the mail [to a Web site] wasn't a crazy thing, but now people expect the experience of payment will be consistent, fast, and secure,” he says. “When it comes to eBay, it's different, and it impacts their trust.” McDonald says sellers' reaction to the all-electronic policy has been “mixed.” Some sellers approve of the change, viewing checks and money orders as requiring a lot of manual and costly back-office work, he says. Others fear the change will cost them sales from steady customers who only pay by check. But McDonald says eBay will allow sellers to accept checks from such customers as long as the sellers don't promote the choice. That reassurance, he says, has soothed sellers' fears. But that's not all there is to the all-electronic policy. Starting in late January, eBay will require sellers with merchant accounts to integrate their sites with eBay's checkout interface through PayPal's Payflow transaction gateway. PayFlow service will be free of charge on eBay transactions indefinitely, McDonald says. Ebay expects to complete the conversion within a month. “Of all the changes, this will be the easiest for the seller,” he says. At the same time, the third-party processors on the approved vendor list will have to integrate their products with the checkout interface as well. McDonald says eBay began talking to the vendors about this change several months ago, but the only one that has completed the development work needed for the integration so far is ProPay. McDonald says eBay is continuing talks with the other providers in an effort to add a “variety” of payment methods. “We've kept the offer open,” he says, though he concedes “some will in the end say it's not worth it.” The idea behind this change, McDonald says, is to keep buyers on the eBay site. About 20% of transactions require buyers to leave eBay to complete payment, he says. “We get some pretty strong reactions from buyers to that,” he notes. “It can be scary.” Regardless of how payments providers and sellers react to the new policies, the changes don't mean that Google Checkout or Amazon's Flexible Payments and Checkout services are likely to be available at eBay any time soon. When Google Checkout launched, eBay said it was barring the service because it was new and unproven (Digital Transactions News, July 10, 2006). Now, the company is frankly admitting the reason for the exclusion comes down to competition for online business. “The fact is Google and Amazon compete with eBay, including on our marketplaces directly,” says McDonald.