Bill Me Later-Amazon Deal Could Be a Huge Boost for Both Parties

At the stroke of a pen, Bill Me Later Inc. has not only become the sole third-party alternative payment vehicle accepted by the world's largest retailing Web site, but it also receives an injection of capital as that site, Amazon.com Inc., takes an undisclosed equity stake in the Timonium, Md.-based processor. The double boost for Bill Me Later comes in a deal announced by the two companies Tuesday and arrives at a time when alternatives to bank-issued credit and debit cards are gaining favor in e-commerce. It also follows Amazon.com's own foray into online payment processing with its Flexible Payments service (Digital Transactions News, Aug. 6). No timetable has yet been announced for Amazon to start accepting Bill Me Later, though only the domestic site will take the payment product. “We're working to get the feature live on our site as soon as possible,” says a spokesperson for Amazon, which expects to sell between $14.2 billion and $14.6 billion in merchandise this year. “We're really just adding to the payment options our customers have. We want to offer the broadest selection possible.” Currently, Amazon accepts cards, checks, ACH debits, and its own Amazon Payments transfers. Neither party will detail the extent of Amazon's stake in Bill Me Later, except to call it a “minority” investment. But it may well turn out to be a good investment for the giant Web merchant, says Adil Moussa, an analyst at Aite Group LLC, Boston, who follows the alternative-payments business. Fast-growing Bill Me Later processes transactions for 700 of the Web's largest merchants, up by about 500 clients over the past two years. It allows consumers to buy now, pay later, and revolve balances as they would with a credit card. The biggest merchants pay 1.5% plus 15 cents per transaction, with smaller ones paying higher fees–revenue that Amazon will now get a piece of. “Bill Me Later is growing, and they're not going after [small merchants],” says Mousa. The income for Amazon, he says, could be “significant.” At the same time, Bill Me Later should help Amazon cut its transaction costs. Most e-commerce merchants are seeking alternatives to bank cards because of the cards' rising acceptance costs. These costs hit online merchants especially hard because they must pay so-called card-not-present rates, which are higher than rates charged to brick-and-mortar retailers. The Amazon spokesperson refuses to reveal Amazon's Bill Me Later pricing. “I'm sure they got a very good rate from Bill Me Later,” says Moussa. This could prove especially helpful to Amazon as Bill Me Later drives traffic to the merchant from its own site, which promotes the merchants it processes for along with extended-payment financing deals from those merchants. For Bill Me Later, the agreement with Amazon brings an immediate injection of funding but also the potential for a huge lift in transaction volume and prestige. While Moussa estimates Bill Me Later's processing volume in 2006 at just under $1 billion, capturing just 3% of Amazon's sales could boost that volume by more than 40%. Amazon will not disclose its projection for Bill Me Later sales. At the same time, the tie-in could benefit the processor in much the same way as online-auction giant eBay Inc. benefited PayPal Inc. when it bought that processor in 2002. “Bill Me Later is not like a PayPal, where everybody knows them,” says Moussa . “They're not at that status yet.” PayPal this year introduced its own deferred-payment product, called PayPal Pay Later. This product, along with PayPal Buyer Credit and the PayPal Plus credit card, will generate nearly $1 billion in volume this year, the company says. In an e-mail message to Digital Transactions News, a spokesperson for PayPal won't comment on the Bill Me Later deal with Amazon but adds that “our customers have told us that transactional credit and deferred payments should be part of a more complete payment offering, including credit cards, bank accounts, and cash (stored balances).” Consumers sign up to use Bill Me Later by filling out short form in which they give their birth dates and the last four digits of their Social Security Numbers. If they choose Bill Me Later at checkout, they authenticate themselves with this information, and can then carry a balance as they would with a credit card. Special promotions in some cases will let consumers finance purchases for anywhere from 90 days to six months at no interest. In August, Amazon unveiled what it calls a beta test for its Flexible Payments, which allows consumers to pay for online goods via automated clearing house transfers, credit cards, or the merchant's own Amazon Payments service. Now, with Bill Me Later on board, the merchant is ready to consider other payment methods. “We'll look at other alternative-payment vehicles if we think our customers will benefit,” says the Amazon spokesperson.