“Buy now, pay later” offers can boost a marketer’s sales — but they can also increase its load of bad debt. By using an outside vendor to run its deferred-credit program, cataloger/retailer Ross-Simons is reaping the benefits with none of the risks.
In November the jewelry and gifts marketer began accepting Bill Me Later, a type of credit card from Timonium, MD-based payment solutions provider I4 Commerce, as payment for Web orders. The average dollar amount for online orders paid via Bill Me Later has been 70% greater than those paid by credit card, says Cindy Marshall, vice president of marketing for Cranston, RI-based Ross-Simons.
The cataloger then conducted an A/B split mailing at the end of December. One set of catalogs had a dot whack on the cover touting Bill Me Later as well as a bind-in explaining the service; the other catalogs didn’t offer Bill Me Later at all. The average order amount among those that received the version of the catalog promoting Bill Me Later was “slightly higher,” Marshall says, with response about level.
Easy does it
As far as Ross-Simons is concerned, Bill Me Later is simply another credit card. “It’s processed the same as a credit card, and we get paid just as we would with a normal credit card,” Marshall says. “The liability is on I4 Commerce. It’s up to them to collect the money.”
What’s more, I4 Commerce charges merchants a lower processing fee than do most established credit-card companies. Most credit-card companies charge merchants 2%-2.3% of each purchase; for a $100 order, then, the merchant receives $97.70-$98.00, with the credit-card company taking $2.00-$2.30. I4 Commerce charges only 1.5% per order, with no up-front fees.
I4 Commerce can charge merchants a lower fee, says CEO Gary Marino, “because we operate a very efficient system using the biggest payment companies in the industry as partners.” The company launched Bill Me Later two and a half years ago but only recently has been signing on such catalog customers as E-bags, 1-800-Flowers.com, and Wine Enthusiast, in addition to Ross-Simons.
To grant a consumer credit approval, Bill Me Later requires only the shopper’s birth date and the last four digits of his social security number, in addition to the basic information (name, address, and phone number) that the shopper supplies when placing an order. I4 Commerce can approve or reject customers’ credit in three seconds, says Marino, a former chief credit officer with Citibank.
The system is designed “to create a better purchasing experience than credit cards offer,” Marino says. “The difference to consumers is that they don’t have to use a credit card or anything else that’s not already in their mind to close a purchase.”
Customers receive a statement within 30 days, just as they do from regular credit cards, and they can pay the same way they do ordinary credit card bills — all at once or financed over time. Bill Me Later offers customers a fixed interest rate of 17.9%, which Marino says is comparable to average bank-card rates and less than the average rate of 20%-plus among private-label credit-card issuers.
You might expect Bill Me Later to appeal to subprime consumers who were not approved for standard credit cards. But Marino says that Bill Me Later attracts “very established consumers who are hesitant or uncomfortable exposing their credit-card credentials online or over the phone,” rather than high-risk customers.
If there’s a drawback to Bill Me Later, it’s the lack of awareness among consumers. The service isn’t a brand name along the lines of American Express, Visa, and MasterCard. A cataloger that accepts Bill Me Later payments would likely have to educate customers and prospects on its benefits before a significant number of shoppers would use it.