ELayaway Gets Set for Expansion After a Low-Key Start

It's the new, old payment system. That's essentially how an electronic-payments startup called eLayaway LLC is billing itself as it prepares for bigger things following two years of testing and a low-key rollout to merchants and consumers. Tallahassee, Fla.-based eLayaway's slogan is “credit is overrated.” Its system allows consumers, once they enroll, to buy from its network of online merchants and make payments over time, typically four to 13 months. But users don't actually take out a loan. They receive shipment only when they make their final payment, according to Michael Bilello, vice president of strategic relations at eLayaway. With each purchase, consumers pay a transaction fee of 1.9%?effectively the cost of interchange on a bank card normally paid by merchants. ELayaway debits the buyer's checking account via the automated clearing house; buyers can choose the monthly withdrawal date. Files are sent in batches, with banking giant HSBC USA Inc. providing settlement. HSBC holds the funds in an escrow account and then pays the merchant upon the buyer's last payment. Merchants don't pay any discount rates or other acceptance charges, a powerful weapon in an era when online and physical retailers are griping about the high cost of accepting credit and signature-based debit cards. So far, about 97% of orders have led to full payment, according to Bilello. Cancellation costs the buyer $25. The concept of layaway?ordering goods but not taking possession until payment is made in full?fell out of use with the rise of credit cards in recent decades, says Bilello. He says the current credit contraction originating with problems in the subprime mortgage market provides a good environment for layaway's revival. His company's target customers include subprime consumers who can't get credit cards because issuers are tightening standards and those with good credit who want to shop online but don't want to go into debt. “We're re-birthing a sleeping giant that was born in the Great Depression,” he says. Chief executive Sergio Pinon and president Matthew Ryncarz founded privately held eLayaway in 2005. Their network of mostly niche online retailers, now up to about 700, went live in 2006. Electronics retailer CompUSA, which nearly went belly up last year but is staging a partial revival this year under new ownership, had been its only national merchant with physical stores. Things are about to change, however. This month, online-authentication provider CardinalCommerce Corp. announced that it would link eLayaway into its Cardinal Centinel platform. Once the technical work is done, the linkage will open eLayaway acceptance to Cardinal Centinel's 30,000 merchants, according to Bilello. Online merchants can tap into the Verified by Visa and MasterCard SecureCode authentication services through Cardinal Centinel in addition to a number of alternative payment systems. Those alternatives include the ACH, BillMeLater, eBillme, Google Checkout, Green Dot, PayPal, MyECheck, and the United Kingdom-based Ukash system. Bradley Poole, senior account manager at Mentor, Ohio-based CardinalCommerce, calls the new eLayaway option an “added layer of benefits to merchants” as they seek to provide more payment alternatives to customers. ELayaway pays an undisclosed per-transaction fee for using Cardinal Centinel. ELayaway also is working on signing direct merchants, including a number of big-box retailers whose names Bilello says he can't yet disclose. “The challenge for them will be developing a relationship with national merchants,” says Adil Moussa, a merchant-acquiring researcher with Boston-based Aite Group LLC. “That's the measure of their success?if they're able to sign up with those guys.” While merchants undoubtedly will like eLayaway's acceptance costs, there could be fulfillment issues associated with the payment alternative, Moussa notes. Merchants may need to find extra space to store unshipped items, and unless they put an item aside upon receiving the order, they could encounter customer-service problems if that particular item is discontinued between the time of ordering and shipment. The network expansion could help lift eLayaway's customer base from just over 15,000 currently to about 100,000 by year's end, Bilello predicts. ELayaway is planning a marketing campaign that will kick off at June's Internet Retailer conference in Chicago. The company has recruited Deion Sanders, the former National Football League cornerback and Major League Baseball player, as a spokesperson. Bilello says eLayaway's investors include its principals and so-called angel investors. He declined to disclose how much in capital the firm has raised.