Cash Alternative Payment Services - Fraud Library

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Cash alternative payment methods are not a new concept. The basic forms of cash alternative payments (i.e. escrow, paper checks, stored value accounts and money order) have been around for years but in the eCommerce world they have limited success. These payment options have relatively low adoption rates among the merchant community. However, in developing countries like China and elsewhere these payment options are typically the dominant and preferred payment method.

According to Forrester's Asia Pacific 2007 Consumer Survey, online financial security is a major concern for Chinese and Japanese consumers, while a lack of credit cards is the top barrier for many affluent Indian consumers. Merchants that are seeking to sell their goods and services in Asia Pacific need to address consumers' payment concerns and barriers.

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Cash Alternative Payment Services

How Good is it?

In general cash alternative payment services are safe and trusted as an alternative payment option in the online marketplace. Cash alternative payment services provide merchants access to consumers in the under banked and un-banked sectors. These payment options also provide a means for security conscious consumers to make purchases when they are not comfortable to providing sensitive banking information online.

Pros and cons of Cash Alternative Payment include:

• Lower fraud risk, but not zero risk

• Checks present bad debt collections concerns

• Access to new customers

• Lower transaction costs

• Time lag from time of purchase to receipt of payment

• Abandonment risk from consumers that buy but never pay

• Limited customer bases of stored value card service providers

Considerations When Implementing or Buying This Functionality    

• How will you handle the time lag between when a consumer places an order and you receive payment? Checks and money orders still need time to clear.

• Money orders are not free from fraud, even if you receive a money order, it should not be considered good until it is deposited and cleared.

• Escrow services typically have a dispute arbitration process, make sure you understand your requirements for shipping notification and confirmation.

• What is the payment option trend in the vertical you are operating?

• How will you handle bad checks?

• Make sure the payment is a preferred payment method for your consumer base. (regional bias, affluence bias)

Estimated Costs – Aside from escrow services, the costs associated from these payment options are lower than traditional credit card fees. Costs will vary based on the vendor you select. The costs associated with disputes related to cash payments is typically higher than credit cards on a transactional basis. The reason for higher cost is associated with increased manual touch requirements.

Alternative Solutions – Payment aggregators, ACH payment and credit cards are the most popular form of alternative payment solutions to cash alternative payment service providers.

If you are in the market for new alternate payment options you should consider purchasing our Guide to Alternate Payment Options. A Guide to Alternative Payments is a prepared research document, 99 pages in length, intended to provide organizations an overview of the eCommerce alternative payment options and markets.  The Guide goes beyond a general market assessment to provide information businesses need to assess solution options and service providers.  The Guide also includes easy-to-understand reference tables on regional service providers (over 100 service providers), preferences and capabilities.

How Does it Work?  

Checks: Consumers write a check from their personal or business checking account and send it to the merchant for payment of services.

Escrow: Escrow services insert a middleman into the payment process, responsible for collecting funds from the consumer, and for paying the seller for goods or services rendered. Escrow services are intended to be a neutral participant in the process, insuring both parties are protected from fraud.

Money Orders: Using a trusted third party agency, consumers can go into a brick and mortar location and use cash to purchase a "check" that is considered to be a secured payment.

Stored Value Accounts (eWallets, gift cards): Electronic money (also known as e-money, digital cash or digital currency) refers to money which is exchanged only electronically. Typically, this involves the use of computer networks, the internet and digital stored value systems. Electronic Funds Transfer and direct deposit are examples of electronic money. Technically electronic or digital money is a representation, or a system of debits and credits, used to exchange value, within another system, or itself as a stand alone system. Many systems will sell their electronic currency directly to the end user, such as Paypal and WebMoney, but other systems like Liberty Reserve, sell only through third party digital currency exchangers. It should be understood that this includes solutions where consumers can purchase gift cards in brick and mortar locations and use them online.

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