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Discount Online Retailer to 'Bill Me Later'

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Posted April 6, 2004 By Susan Kuchinskas     Feedback

TigerDirect is the latest company to sign on for technology that offers a credit card-free way for customers to pay.

Multi-channel consumer electronics retailer TigerDirect added a new way for customers to pay with the addition of the "Bill Me Later" service from I4 Commerce, the company said in a statement Tuesday.

The Timonium, Md.-based payment service provider today announced that it has added TigerDirect to its roster of clients. Beginning later this month, online shoppers proceeding to checkout will see the Bill Me Later option along with the option of using a major credit card. To use this option, they provide their name, shipping address, date of birth and the last four digits of their social security number. The option will also be available to customers placing telephone orders.

Retailers using Bill Me Later hand off the transaction to I4 Commerce, which authorizes each one in about three seconds, according to the company. It settles with the merchant in two days, and then bills the customer. The consumer can pay in full within 30 days or choose to make a minimum payment and finance the rest of the transaction.

"We think this is a great option, because it gives customers flexibility," said Bruce Matthews, vice president of business development for Miami, Fla.-based TigerDirect. "Instead of us choosing the way you have to pay, we want you to buy from us the way you feel most comfortable." TigerDirect also supports payment via PayPal.

TigerDirect features low prices on limited quantities or factory closeouts, so Bill Me Later lets customers take advantage of hot deals that may be gone before their paycheck comes, Matthews said.

While the preferred method for online shopping is still credit cards, Bill Me Later provides merchants with a viable alternative for those consumers who either don't have a credit card or don't want to use it because of security fears, said Jupiter Research analyst Bruce Cundiff. According to a recent Jupiter survey, 73 percent of consumers chose to use credit cards, followed by 27 percent who chose a debit card, 23 percent who liked PayPal, and 16 percent that preferred the Bill Me Later option.

"I see Bill Me Later as more of a convenience solution than a security [option]," Cundiff said. "The hook is definitely 'pay later.'"

Cundiff said it's also an excellent option for merchants, because, as long as they follow I4 Commerce's guidelines, I4 will assume the risk, while credit companies stick the merchant with much of the cost of fraudulent transactions. Because fraud is a much bigger issue for merchants than for consumers, Cundiff said, "Merchants probably love this. They seem to be filling a niche right now, and the merchant base has been growing "

I4 Commerce makes money by charging merchants a transaction fee that's less than what credit card issuers charge them, and also from finance charges. Mark Lavelle, vice president of business development for I4 Commerce, said that fewer consumers using Bill Me Later finance their purchases than those using credit cards.

While the option of letting customers buy now and pay later is a good marketing tool for merchants, according to Lavelle, it's not a deadbeat attractor. He said the average consumer using the service has 4.5 credit cards and a very high credit score. One way I4 Commerce limits its risk of fraud is by carefully selecting online merchants that have mature operations with excellent fraud controls in place.

"We're not everywhere you want to be... we're everywhere we want to be" he said. Other I4 customers include Hotels.com and 1-800-Flowers.com.

Safety in Numbers
When it comes to online privacy, merchants and banks point to the high security of online transactions, while privacy advocates focus on the high-profile occasions when hackers access databases. For example, in 2002, the FBI charged three men with hacking into the database of Experian, the credit reporting agency. The men were able to steal personal information on 15,000 customers of Ford Motor Credit over a 10-month period.

Joanne McNabb, chief of the California Office of Privacy Protection, said that her organization's position is that while it's not clear whether using a truncated social security number is safe, nor how many digits offer a security risk, the fact that a partial SSN is typically provided along with other personal information that could be aggregated to access personal records makes the practice of using the last four digits problematic.

ARS analyst Jennifer Gerlach said she hasn't seen a big demand for this option among retailers, and she thinks that's because of the security issues.

"With identity theft becoming rampant, putting in the end of someone's social security number is going to be very dangerous, Gerlach told internetnews.com. "They'll need to do a lot of research and provide proof [it's safe] in order for consumers to give up part of the social security number."

Chris Hoofnagle, associate director of the Electronic Privacy Information Council, a Washington, D.C. public interest research organization, said it makes more sense for consumers worried about identity theft to use a credit card number than part of the social security number.

"You take on less personal risk by just using a credit card number," he said, "because under Federal law, you're limited to $50 worth of liability -- and all credit card companies have waived that."

On the other hand, according to Hoofnagle, the last four digits of the social security are the only unique digits. The first numbers correspond to the state in which the number was issued, while the middle two digits are group numbers tied to when the number was issued. He said, "The last four are actually the most sensitive."

That may be so, but Lavelle adds that consumer surveys and tests before the launch of Bill Me Later showed, "It's not something consumers feel is extremely worrisome about giving out." According to the company's press materials, Hotels.com found that the average transaction by Bill Me Now users was 10 percent higher than that of credit card users, while it had a 35 percent incremental increase in sales thanks to those who had credit cards but chose to use Bill Me Now.

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