PayPal Goes Upstream ON ADVERTISING

By Bob Tedeschi

Adecade ago, PayPal was known as the payment method of choice for Beanie Babies purchases on eBay. This holiday season, it could notch a $10,000 diamond ring on Blue Nile.

Blue Nile and a handful of other top-line online retailers in the United States are introducing discount promotions with PayPal in hopes of attracting consumers to alternatives to credit cards for online purchases.

Retailers are also looking to PayPal – and rivals like Google Checkout and Bill Me Later – to help them avoid credit card processing expenses that, in tighter economic times, can mean the difference between profit and loss.

“Merchants are definitely focused on generating more volume for alternative payments in the holiday season,” said Bruce Cundiff, an analyst with Javelin Research, a consulting firm. “It comes down to changing consumer behavior.”

That, Cundiff and other analysts said, is where the Blue Nile promotion comes in. Starting Nov. 26, customers who buy with PayPal will receive 20 percent off on their purchases, with a maximum of $50 off.

More than 15 merchants, including Barnes&Noble.com and SharperImage.com, will follow suit, while other sites, like Shoebuy and Zales, will offer other discounts and shipping promotions to PayPal customers.

Cundiff said PayPal, which is owned by eBay, is the major reason credit card alternatives have gained roughly 14 percent of the market, with their growth accelerating in recent years as more merchants offer such services.

PayPal’s technology automatically fills out the consumer’s shipping and billing information whenever they reach an online checkout page, and hides sensitive financial information from merchants. (Users can link their PayPal account to a bank account or credit card account, among other things.)

Paypal said about 150 million people and an undisclosed number of merchants “in the hundreds of thousands” were using its service. It is now the primary engine of eBay’s growth, with revenue in the most recent quarter jumping by 35 percent from a year earlier, to $470 million.

Substantial as that may be, said Darrell Cavens, Blue Nile’s senior vice president for marketing and technology, only in the past year has PayPal gotten popular enough to offer on the site. “They’re not so alternative anymore,” Cavens said. “It’s becoming mainstream.”

Blue Nile offered the PayPal option to its customers in October, he said, with positive results that Cavens would not quantify. “But we’ve certainly seen much higher sales through PayPal than I had expected,” he said. That, in turn, can help Blue Nile’s bottom line, since PayPal typically charges merchants lower processing fees than credit cards. “Small differences like that can have a big impact,” Cavens said.

In pushing promotions to attract merchants and consumers, PayPal is getting lots of competition from Google’s Checkout and I4Commerce’s BillMeLater, among others.

Google’s Checkout service, like PayPal’s, stores consumer payment information to allow them to quickly complete transactions on roughly tens of thousands of Web sites that accept the service. That number has grown significantly from a year ago, analysts said, because Google has given out advertising incentives or discounts on payment processing fees that, in term, enable merchants to offer consumer discounts.

A Google spokesman, Michael Kirkland, said Checkout would soon announce holiday promotions similar to those of Bluefly, Buy.com and other merchants during the back-to-school shopping season. At that time, the merchants gave away free-shipping and other discounts aimed at Checkout’s customers, whose numbers, Kirkland said, reached into the “millions.”

Bill Me Later, which allows merchants to extend short-term credit to customers, has enjoyed similar growth. Gary Marino, chief executive of I4Commerce, said more than 700 companies now offer Bill Me Later service, more than twice last year’s figure, and users have nearly doubled, to about four million.

The big mystery for retailers who take the time to integrate alternative payment services is whether customers who opt for Bill Me Later or PayPal would buy anyway with their credit cards.

If that is the case, money saved on payment processing fees is not necessarily enough to offset the time and expense of changing a Web site’s payment technology.

Originally published by The New York Times Media Group.

(c) 2007 International Herald Tribune. Provided by ProQuest Information and Learning. All rights Reserved.