Bill Me Later Not Likely to Suffer from Its Ouster from Amazon

Not surprisingly, Amazon.com Inc. disclosed this week that it would no longer accept Bill Me Later Inc., the fast-growing online credit system now owned by Amazon archrival eBay Inc. But at least one analyst expects the damage to Bill Me Later will be minimal despite the loss of access to the No. 1 Web retailer. Many observers had expected Amazon to stop accepting Bill Me Later when online auction leader and retailer portal eBay announced in October that it would buy Bill Me Later for $945 million and place it under the wing of eBay's PayPal payment system (Digital Transactions News, Oct. 6). The deal closed Nov 7. Amazon waited until Dec. 30, after the holiday shopping season, to post a notice on its Web site saying that starting Dec. 31 it would not accept Bill Me Later, according to published reports. Amazon did not give a reason. A spokesperson for Seattle-based Amazon refused to comment. An active experimenter in payment alternatives, Amazon had been a minority investor in Bill Me Later, with a stake believed to be 10% or under, and had only started accepting the credit system last summer (Digital Transactions News, July 14). A spokesperson for Timonium, Md.-based Bill Me Later would not disclose how much volume the company generated through Amazon or how much of Bill Me Later Amazon owned before the eBay acquisition. In a statement, however, Bill Me Later said the change in control of the company gave Amazon the right to discontinue acceptance. Bill Me Later left the door open for reconciliation. “We think Bill Me Later provided a valuable service to shoppers on Amazon.com, and we would welcome the chance to work with Amazon.com in the future,” the statement says. James Van Dyke, president of payments research firm Javelin Strategy and Research in Pleasanton, Calif., doesn't see Amazon's rejection doing serious damage to Bill Me Later. “This is a small setback for Bill Me Later,” he tells Digital Transactions News. “It doesn't portend a major change.” Amazon, one of the few retailers to report strong 2008 holiday sales, is trying to sell more high-end goods that consumers might like to finance over time. But Amazon still is mainly a site that generates small to medium-sized tickets that can be paid for through services other than Bill Me Later, according to Van Dyke. “I don't think Amazon is the best customer for Bill Me Later long-term,” he says. Van Dyke also notes that though Bill Me Later uses a different method of granting credit than credit card issuers, consumers' usage of credit for online purchases is declining in favor of debit and other payment alternatives. “It is fascinating to me that credit card usage is going down … yet Bill Me Later is like a form of super-credit,” he says. Rather than granting the borrower a line of credit with a limit and then approving transactions based mostly on how much the borrower has open on that line, as does a credit card issuer, Bill Me Later uses a proprietary “transactional” credit system in which the borrower's risk is assessed with each purchase. While the Web's alternatives to credit cards are indeed gaining, Bill Me Later reports buyers and sellers like its system. More than 1,000 online merchants now accept Bill Me Later and more than 4 million consumers have used it, charging an estimated $1 billion this year. Besides not wanting to aid a payment system owned by a rival, it is also possible that Amazon didn't find Bill Me Later's pricing to its liking. Bill Me Later's standard pricing for large merchants has been reported at 1.5% plus 15 cents (Digital Transactions News, Dec. 11, 2007), but merchants' total acceptance costs vary with the financing terms of purchase and can go as high as 5%, according to Van Dyke. For instance, he says merchants have told him that 90-day or 120-day zero-interest promotions cost the most, while shorter-term promotions cost less. “Amazon will try anything” in payments, he says. “The only thing that will eventually cause them to say 'no' is the high cost.”