Overstock.com Says PayPal Yields Triple Expected Volume

Online merchants implementing payment alternatives to bank cards are beginning to report significant results. Since it started to accept PayPal in November, for example, online closeout retailer Overstock.com Inc. has seen the alternative payment method soar to 10% of its revenues and 12% of its orders, according to Alan Johnson, Salt Lake City, Utah-based Overstock's director of payments and fraud prevention. Johnson reported Thursday at a PayPal-sponsored merchant event in Chicago that Overstock is getting “three times more business than what we expected” through the channel. Fifty percent of PayPal-using customers are new to Overstock, he said. And although he didn't give numbers, Johnson said Overstock's loss rates on PayPal transactions are “by far lower” than any of the card brands despite the phishing attacks PayPal attracts. After more than six months of preparatory work, Overstock went live with eBay Inc.'s PayPal service at midnight on a day close to Thanksgiving 2007, according to Johnson. By the time he came in to work later that morning, Overstock's PayPal balance already was in “six figures,” he said. PayPal put on Thursday's event as part of a five-city tour to discuss recent consumer shopping trends, and it featured data from Internet technology analysis firm JupiterResearch LLC. Overstock had revenues of $768 million last year and has an average of 13 million unique visitors to its Web site monthly. The company added PayPal to its payments menu because of requests from consumers, its desire to attract Internet-savvy customers, and to build customer loyalty. Although it's only been not quite four months, PayPal's ability to generate traffic and co-marketing campaigns combined with comparatively low acceptance costs and fraud rates are making the option worthwhile for Overstock, according to Johnson. “Even with conservative estimates, the ROI [return on investment] can be significant,” he said. In 2003, Overstock became an early adopter of Bill Me Later Inc., an alternative online credit provider now accepted by more than 700 retailers, airlines, and other merchants selling online. Johnson tells Digital Transactions News that Bill Me Later quickly captured 6% of Overstock's sales. More recently, Bill Me Later's share has ranged above or below that mark. There's a third alternative, one that Overstock doesn't accept?search-engine giant Google Inc.'s Google Checkout. With Google Checkout, a consumer can register his personal and card information once in order to pay quickly from then on at Checkout-accepting merchants. Overstock hasn't implemented Checkout because it wants more information from Google. “We definitely have analyzed Google Checkout. It's really hard to get metrics from Google,” says Johnson, adding that PayPal more readily provided the metrics Overstock was seeking. “With Google, it's a lot more gray.” A Google spokesperson could not be reached for comment. Citing his firm's studies, Ed Kountz, a senior analyst at New York City-based Jupiter, estimates only 1% of online shoppers prefer to use Google Checkout compared with 38% for market leader Visa, 24% for MasterCard and 23% for PayPal. He also estimates that Google has spent $60 million to $80 million developing and promoting Checkout, which launched in 2006. Asked about why Google Checkout's market share is so low, Kountz says Google probably is learning how “extremely challenging” it is to put together a multifaceted payment system. “It is not something that is easily done overnight,” he says.