BidPay Fails: What Are The Lessons Learned?

BidPay was developed by Western Union, FDC's money transfer/remittance unit. The basic economic model of Western Union - which was also applied to BidPay - was that the sender of funds (e.g., the buyer in the case of an auction purchase) pays the fees for the payment service that's delivered. Correspondingly, in this model the receiver of funds (e.g., the seller in an auction) pays no fees for the payment service provided. This article on AuctionBytes from Feb. 2005 provides an excellent overview of BidPay.

By definition, this business model presumes an asymmetric power relationship between sender (buyer) and receiver (seller) where the receiver of funds is most important and is in a position to essentially dictate payment terms to the sender:

I have this, you want it. To get it, you must pay me the following way: BidPay.

We'll call this the Strong Seller model.

Most of the purchase transactions in this world are exactly the opposite:

You (and others) have what I want and I'm willing to pay you (or your competitors) for it. For you to be the successful seller and to get paid, you must accept payment under my terms.

We'll call this the Strong Buyer model.

Being of Western Union heritage, BidPay adopted the Strong Seller business model for its auction payments solution. Others, especially PayPal, adopted the Strong Buyer business model instead.

In addition to the basic question of who pays the fees for the payment service provided (buyer vs. seller), there's also the question of whether the buyer is offered any recourse rights from the payment service. Again, we see similar patterns. With BidPay's Strong Seller model, there is essentially no buyer recourse provided. With PayPal's Strong Buyer model, there are a number of recourse options available to the buyer in the event of disappointment with the seller's performance.

With the announcement of FDC's shutdown of BidPay, it has clearly failed to achieve market success -- we'd argue not at all surprisingly given the basic approach and business model BidPay used. That being said, BidPay is defined as an acceptable alternative payment service by eBay and included in its new Safe Payments Policy which takes effect in January. Once that new policy takes effect, any new entrant seeking to provide payment services to eBay sellers will have to take additional steps to be approved by eBay.

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