BusinessWeek – Why not just put it on a Visa? Experts point to three main drivers for alternative payments: concern over fraud risk, growth in merchant participation, and fear of, or lack of access to, credit cards. Use of online payment services is likely to accelerate in the coming year, says Bruce Cundiff, Javelin’s research director. “PayPal is gaining this following and that is essential,” he says. “In five years, we forecast that PayPal will represent more than 10% of online transactions.”

Credit-Card Alternatives
Identity theft has grown more than 50% since 2003 (BusinessWeek.com, 11/21/07) as people release more sensitive information online, according to Gartner (IT). To protect users, online payment alternatives won’t pass a credit-card or checking account number to a merchant. Instead, PayPal and others typically deliver funds through an intermediary account that in turn draws on a bank or credit account. The payment service can receive funds from the underlying account; the merchant cannot.

Another reason online payments are gaining greater traction is that more retailers and other merchants are using them. When alternative payment services began emerging in the mid-to-late 1990s, many merchants saw little benefit in allowing an unknown, untrusted company to process payments—not when most shoppers, in the U.S. at least, had viable credit cards. “In the early years, we had to do a lot of evangelizing,” says Mark Lavelle, Bill Me Later’s vice-president of corporate development. “Yes, your customers have credit cards, but that doesn’t mean that is the only way they want to pay.”

As a result of merchant reluctance, payment providers often had to tie themselves to an e-commerce mall of sorts, like PayPal did with eBay. It was that or settle for the transactions that credit-card companies refused to process. Read Full Article