Price of Progress

Consumers have come to have certain expectations when they shop on the Internet. Once they know what they want to buy, the sale can be completed almost immediately. Then they are typically presented with a multitude of payment options, usually including major credit cards, bank-issued debit cards, electronic checks and new options such as PayPal, BillMeLater or eBillme.

In the physical world, however, payment remains slightly different. Once a selection of goods has been made, customers often have to stand in line to pay by cash, check, debit or credit card.

With a growing number of consumers shopping both online and in stores, some payment experts wonder if consumer payment expectations will change. Will consumers accustomed to using some of the new alternative payment options offered online begin to expect the same options when they walk into a store? Will they want to make immediate payments rather than stand in line? And will they expect a fast, easy way to compare prices from multiple stores? If so, what are the ramifications for merchants — particularly those that sell across multiple channels?

And the situation could get even more complicated as consumers begin to shop using mobile phones. Forward-thinking retailers may need to consider today what options related to payment they might need to consider for the near future.

“There is a lot more talk today about whether some of the e-commerce payment brands will make their way” into the store environment, says Souheil Badran, SVP and general manager for e-commerce for First Data, a major payments processor for both Internet and bricks-and-mortar retailers.

Badran notes that 78 million consumers use PayPal to pay for their products online, but the overwhelming majority can’t use that same payment option when making an in-store purchase — even if they’re shopping with the same retailer. As PayPal and other payment alternatives like BillMeLater and eBillme grow in popularity, consumers will develop loyalties to them – and many will expect to have them available in stores, as well.

PayPal allows consumers to register their credit and debit cards and bank account numbers. Then, when customers are ready to make a purchase, they click the PayPal option at a participating retail site and specify the account from which they want to pay. BillMeLater, available at more than 1,000 retailers, allows consumers to shop at multiple online locations and then receive one consolidated monthly bill. They can then pay the bill or revolve part or all the balance. eBillme allows consumers to buy goods from approximately 800 online retailers and pay through their online bank sites.

Looking at logistics
Retailers might argue that consumers know that certain types of payment options are only for online shopping, but some payment experts believe it is not always so clear. Complicating the issue is the fact that some retailers allow consumers to make purchases online and make in-store exchanges or returns.

This can become “a big back-office issue … when the products were purchased with a payment option the store does not accept,” Badran says. While those back-office logistics may not be apparent to the consumer, the payment differences might become more obvious if a customer exchanges an item purchased online for another item that costs slightly more, and asks for the balance in a form different from the original payment.

Still, despite consumer interest, moving online payment options into the physical world may not be as easy as it sounds. “I’m sure PayPal would like to get into the bricks-and-mortar world, but it is not that easy,” Badran says. “With online payments, for example, consumers using PayPal enter their passwords when prompted. Would they be required to enter a password in the store as well, and how would retailers handle that?”

Brian Riley, research director of Needham, Mass.-based Tower Group, notes that while retailers typically don’t offer many of the new alternative payment options in their physical stores, they do have comparable offerings. “BillMeLater essentially works as an Internet-based installment plan to finance online purchases,” he says. “Most retailers already offer their own proprietary finance plans of some sort, so they really don’t need another option. PayPal always works great online, but with that program, customers are ultimately charging the purchase to a credit card or deducting it from a bank account through a debit card.”

Avoid losing the sale
Additionally, some of the electronic check or electronic payment programs on the Internet typically involve fund transfers made through the automated clearing house. These services are essentially replicated by existing check and electronic check authorization programs available at most retail locations, Riley says. Rather than add more payment options, he argues that retailers should look at other ways that the online shopping experience can be replicated in stores.

“People are becoming used to instant and immediate gratification when they shop online,” Riley says, “and if they don’t get that [in the store] the retailer could lose the sale.”

Much the same is true of comparative shopping sites like PriceGrabber.com, where consumers appreciate being able to find the best price on the product they want with just a few clicks and keystrokes. Riley believes consumers will come to expect the same benefits in the physical world, and retailers will have to come up with creative ways to deliver on those expectations.

One factor that could increase the pressure for bricks-and-mortar stores to expand payment options would be the growth of mobile payments. There are a few pilots and some limited programs wherein consumers can buy books or order gift items right off their phones. And there are also limited pilot programs where consumers can use their cell phones to store payment data. Then, using near field communications (NFC) technology, they can pay by waving their phones near a POS device, with the cost charged to a credit card or deducted from a bank account.