Seeing Opportunity, Moneta Will Add Credit Offers to Its Online Wallet

Alternative-payments processor Moneta Inc. announced this week it will start offering so-called transactional credit to its users at the end of the first quarter. The credit feature, which the Atlanta-based company is adding to an online wallet that currently relies on automated clearing house debits from users' checking accounts, could lift consumer usage and average tickets for Moneta as well as its participating banks and merchants. But it will also demand careful management to avoid customer frustration, experts warn. In launching a credit option, Moneta is following on an example set by Bill Me Later, a Timonium, Md.-based processor that eBay Inc. acquired late last year and paired with its PayPal Inc. payments unit. Ebay announced in November that it has made Bill Me Later a part of the PayPal wallet. Bill Me Later has enjoyed some success in attracting larger online merchants with its focus on transactional credit, or credit offers tied to a specific transaction. “Clearly, merchants like this product,” says Guido F. Sacchi, Moneta's chief executive. “Merchants that have tried Bill Me Later have seen an increase in customers and transaction value.” Few other alternative-payments processors have ventured into transactional credit, a void in which Sacchi sees opportunity for Moneta. By offering credit as a funding option, Moneta can increase its appeal to merchants while also setting itself apart from competing processors. “We need to be competitive and differentiate ourselves from other players in the market,” he notes. Moneta's product will rely on a credit engine from Equifax Inc., one of the country's big repositories of consumer-credit information. Actual credit criteria, as well as the credit itself, will come from the banks that Moneta has been working to partner with over the past 14 months. In November, SunTrust Banks Inc. became the company's first partner, agreeing to run a pilot of its payment system. Moneta agrees to share around 50 basis points of its transaction fee with partner banks, which agree to promote Moneta to their customers. The total transaction fee, paid by merchants, is 1.2% plus a dime. Credit offers will be keyed to specific customers and specific transactions, Sacchi says. Merchant could join in, too, with promotional offers such as 90 days same as cash. “The terms are going to be flexible,” says Sacchi. “It will be a very precise, pinpoint offer.” For the first several months of the program, the offers will be available only to the customers of participating banks. After that, the program could be opened up to non-customers, Sacchi says. “In Phase 1, it's designed for existing customers,” he notes, adding that this phase is likely to last anywhere from six to nine months. Red Gillen, who follows alternative payments as an analyst at Boston-based Celent LLC, says adding transactional credit may help Moneta, but the company has bigger fish to fry. “There's a more fundamental issue for Moneta, and that's how do you get out there and compete with PayPal?” Gillen argues that, in merging its wide acceptance base with Bill Me Later's credit engine, PayPal has created a payments platform that Moneta will be hard-pressed to compete with until it can attract more merchants and users. Moneta has more than 30 merchant clients and almost 100,000 users. Gillen also warns that extending credit can be a two-edge sword, attracting new business and boosting average tickets but also potentially alienating consumers. “If you go too loose [with credit criteria], the partner bank is going to get in trouble,” he says. “If you go too tight, it's a negative customer experience. Merchants are very sensitive about that.” For his part, Sacchi says Moneta will be working hard on building its merchant base early in the coming year. “It's going to be a huge focus of ours in the first six months,” he says. “2010 needs to scale up pretty quickly.”