A Look at Alternative Payment Services

The rise of alternative payment services - from PayPal to Google Checkout, Bill Me Later and many others - is a response to both consumer demand for an improved online payment experience and merchant need to lower shopping cart abandonment rates, payment processing fees, and raise the appeal of online shopping to specific consumer demographics.

While retail point of sale continues to be the largest area for consumer payments, online consumer spending has yet to reach its potential from the payment perspective. In 2000 less than 1 percent of sales were via the internet. Today, that spending is likely to be $116 billion in the United States, a full 5% of retail spending. But this annual growth is predicted to slow from 20 percent to 16 percent by year end and further to 13 percent by 2008.

As these rates slow, online merchants must meet their customers "where they are" with the right payment mechanisms to maintain the highest possible growth and the widest possible sales funnel. Alternative payment systems are fast becoming an important way for merchants to sustain and accelerate that online sales flow.

"Online merchants have to respond to consumer misgivings about online payment security and convenience," stated Melanie Broad, a member of Mercator Advisory Group's Emerging Technologies Service and principal analyst on the report. "When you add game changing providers like Bill Me Later, Google Checkout's blended ad and payments value proposition, PayPal's broadening range of pay now and pay later offers, to the growing set of other payment services, online merchants now have new options and new ways to get paid. While competition will blur distinctions as providers enter each other's space, merchants and their customers will benefit."