New PayPal Service Shows Retail Credit Has a New Life on the Web

Traditional private-label credit cards steadily lost ground over the past two decades to general-purpose payment cards that have much greater utility. Despite the retreat, retailers still like private-label cards because their key attribute?holders tend to shop more often and buy more than non-cardholders?apparently is still valid. Now a new service from online auctioneer eBay Inc.’s PayPal payments subsidiary affirms that private-label credit has a future on the Internet.

The service, called PayPal Pay Later, allows PayPal-accepting merchants to offer customers 90-day free financing. More credit options are likely to follow, a spokesperson for San Jose, Calif.-based PayPal tells Digital Transactions News. “Our merchants have been asking for some time to offer promotional financing because they can integrate one solution and have the promotional financing in place,” she says.

Pay Later’s first merchants include SavingLots.com, a seller of consumer electronics and appliances; GreatMusicProducts.com, a purveyor of musical instruments, DVDs, CDs and books; and Cooking.com, a kitchenwares retailer. “We expect other merchants to come on board in the coming months,” the spokesperson says. The actual credit will be provided by GE Money, General Electric Co.’s private-label card processing unit. GE Money has provided financing services for eBay merchants for about three years and last year launched the PayPal Plus MasterCard, the PayPal spokesperson says.

The credit option is one more reason for merchants to add PayPal, which is trying to expand its market beyond eBay sellers, to their payment options. And bringing in GE Money “was a very smart move” on PayPal’s part, says Adil Moussa, an analyst at Boston-based Aite Group LLC. “They don’t have to reinvent the wheel,” he says.

If PayPal’s experience is anything like that of another niche online-payments service, Timonium, Md.-based I4 Commerce Inc.’s Bill Me Later, its merchants will get a lift by offering deferred financing, Moussa says. Moussa was formerly a product manager at Omaha, Neb.-based processor First National Merchant Solutions, whose clients included I4 Commerce, when Bill Me Later added deferred financing. Depending on the merchant, average tickets increased anywhere from 50% to 200%, he says.

Referring to eBay’s experience, the PayPal spokesperson says credit options do lead to more sales. “We’ve seen first-hand that buyers to tend to spend more and buy higher-ticket” items, she says.

PayPal Pay Later could put pressure on Bill Me Later to expand its client base to smaller Web retailers than it currently serves, start serving physical retailers, and add more processors, Moussa says. That’s because with its new financing service, even more merchants will be attracted by PayPal’s huge customer base, he says. PayPal says it has 36 million active account holders and 153 million in all, about two-thirds in the U.S. “I foresee 14Commerce changing their market approach much faster than planned,” Moussa said in a written assessment after PayPal announced Pay Later last week.

But I4 Commerce claims it won’t make any rash moves just because of Pay Later. “I don’t think it changes anything for Bill Me Later,” I4 Commerce vice president of corporate development Mark Lavelle tells Digital Transactions News. “I don’t see it as something terribly new. We had different value propositions for merchants before, I think that’s still pretty much the case.”

Bill Me Later targets its service at consumers reluctant to use credit cards for Web shopping and offers an array of financing options to customers of its 500 merchants. Lavelle says, however, that even before Pay Later came along some merchants were asking for a physical Bill Me Later payment option. Some already offer Bill Me Later for phone-based sales. While not disclosing I4 Commerce’s next move, Lavelle says “we are being very multi-channel-centric.”