By
msnbc.com contributor
updated 12/13/2007 8:01:51 PM ET 2007-12-14T01:01:51

As online holiday shoppers rush toward the finish line, more of them may be choosing alternative ways to pay for goods than with credit cards.

Rising credit card rates, consumers facing maxed-out cards and security and convenience are some of the reasons for the shift.

“There are an increasing number of payment alternatives,” said Kurt Peters, editor of InternetRetailer.com, citing services such as eBillme, PaidByCash and Bill Me Later.

In addition, “Merchants don’t want to be locked into just MasterCard, Visa, American Express and Discover cards, and consumers have shown they like the alternatives,” Peters said.

Credit cards now account for 60 percent of all online transactions, debit cards another 26 percent and alternative payment methods 14 percent, said Bruce Cundiff, senior analyst for Javelin Strategy & Research.

By 2012, an estimated 30 percent of online transactions “will be handled by alternative sources of payment,” he said.

“The increase in alternative transactions as a percentage of all transaction volume will affect credit cards, which decrease … from 60 percent in 2007 to 44 percent in 2012,” Javelin said in a September report, “Online Payments Forecast.”

Debit card usage will remain steady, the company said.

Marwan Forzley, president and CEO of eBillme,  said his company’s service “appeals to a type of consumer who does not have a credit card, or whose credit card is maxed out and is looking for other ways to pay.”  

With eBillme, consumers pay for online purchases directly through their online bank accounts, much in the same way they pay electricity and phone bills online.

Merchants are charged a fee of between 1 and 1.5 percent for each transaction, compared to between 2 and 4 percent charged by credit card giants such as MasterCard and Visa.

With 84 million online banking users in the United States, Forzley said, online banking “is becoming a mainstream service,” and by using a service such as eBillme, “you’re using the money you have in your online account to pay a merchant.”

Among the companies that now use eBillme are Crutchfield, TigerDirect, and LuggagePoint.com. 

Ebillme acts as an intermediary in the buying process. When a shopper chooses eBillme at checkout, their order is confirmed with a bill sent to their e-mail address. It’s up to the shopper to pay the bill through their online checking account.

“The merchant ships when you pay,” Forzley said.

PaidByCash,  operated by Retail Expansion Network of Oakland, Calif., is geared to consumers who may not want to use credit cards online, or who may not have bank accounts.

Customers can load up to $350 on a PaidByCash card account for use online, purchasing the cards at stores such as Kmart, Rite-Aid, Safeway and Food Lion.

Payment is made through Western Union. The card itself is activated online, and can be used at sites where debit MasterCards are accepted.

Bill Me Later, another service, bills customers for their online purchases with payment terms similar to those of a credit card.

Customers have at least 25 days from the date of the first purchase before payment is due, according to the company, whose clients include Walmart.com, Overstock.com and Petco.

As with PaidByCash and eBillme, no credit card is needed with Bill Me Later, so concerns about security and fraud are lesser.

“The kind of consumers looking for these alternatives are looking for increased convenience or security in the transaction process,” said Cundiff of Javelin Strategy & Research.

Bill Me Later, he said,  “has done a really good job integrating themselves with the marketing options of merchants, with such programs as ’90 days same as cash.’

“They’ve seen a lot of success with that in driving sales, and bringing customers to the Web sites.”

The Electronic Retailing Association advises consumers to make sure they read the fine print and know their rights when dealing with alternative online payment programs.

“As an industry, we’re agnostic about the various payment methods,” said Bill McClellan, the association’s vice president of government affairs.

“As retailers, what we look for is a track record of security and soundness.”

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