Two Payments Companies Target Improving E-commerce and M-commerce Conversion Rates

Frustration with typing in a 16-digit payment card number on a smart-phone screen leads to a lot of lost sales for e-commerce merchants. It’s a problem that two payments companies, offering different products, say they can help with.

Making its U.S. debut first is PayItSimple USA Inc., an installment-payment service. A unit of Israel-based PayItSimple Ltd., the company enables consumers to spread a purchase price over time.

Arriving in early 2015 will be Klarna, a Sweden-based company, with plans to offer expedited checkout services for consumers shopping on e-commerce sites.

PayItSimple works like this. During the checkout process on a participating e-retailer’s Web site, the consumer selects the PayItSimple button and then chooses the number monthly installments. The total payment is verified, and the entire purchase amount is authorized, if approved, by reserving the customer’s available line of credit, says Stacy Fassberg, PayItSimple USA vice president of marketing.

“Soon after, PayItSimple requests the first installment payment from the credit card company,” Fassberg says in an email. “The merchant receives the payment directly from the credit card company, just like a regular credit card transaction. Toward the end of the first month after purchase, PayItSimple requests a new authorization for the outstanding balance (after deducting the payment already received). Once confirmed, the original authorization is canceled.  The process repeats for as many months needed to pay off the entire purchase amount.”

Typically, installment payment plans can be for as long as 12 months, she says.

That process repeats until the entire purchase amount is paid. The service only is available for all U.S.-issued Visa Inc. and MasterCard Inc. credit cards. Consumers pay no fees to PayItSimple to use the service, while merchants pay a small percentage of the total price as well as a small fee per transaction. Merchants receive the entire transaction amount at one time or in installments, in line with the consumer’s plan, Fassberg says.

“Interest-free installment payments on existing credit cards already exists in a number of countries, to the benefit of consumers, merchants, acquirers, and issuers,” Fassberg says. “The American market is an ideal place to make this kind of facility available, based on the usage of credit cards, available credit, and consumer shopping habits.”

Offering deferred and installment credit for online and mobile transactions appears to be a developing trend. San Francisco-based startup Affirm Inc., for example, in June launched a service similar to PayItSimple’s.

Klarna’s tack is different but has the same goal of making e-commerce, and mobile commerce, transactions easier for consumers. Klarna gives consumers 14 days to pay for purchases. Merchants receive the funds immediately from Klarna, however.

To pay using Klarna at participating merchant Web sites, consumers select the checkout button. If she wants to use Klarna, she inputs her email address and ZIP code on the site.

That information is passed through Klarna’s database, where it is checked for any prior Klarna transactions. If it’s a new customer, additional identity-related questions may be asked, Brian Billingsley, Klarna chief executive for North America, tells Digital Transactions News. Additional questions might be asked of existing Klarna users if the purchase appears out of the normal, such as a much higher price or frequency, he says.

The consumer can use most popular payment options, like credit and debit cards, to pay Klarna within the 14-day window. Klarna also offers a revolving line of credit service if the consumer wants to use it.

Klarna wants to make the e-commerce and the m-commerce payment process as easy as possible, Billingsley says. Ultimately, a trusted Klarna user would just enter her email address and ZIP code to make an online purchase.

Klarna charges merchants a discount rate per transaction, which Billingsley declines to disclose. He says it is on par with typical credit card processing rates. Transactions are guaranteed against chargebacks, too, because Klarna assumes the risk.

Klarna has 45,000 retailers in Europe and more than 25 million users. More than 200,000 transactions per day are made via the service.