Cybersource, which provides payment processing, fraud management and payment security solutions to approximately 295,000 merchants, processes about 25% of ecommerce transactions in the U.S. Its merchants include British Airways, H&R Block, Nike, Facebook, Google and Home Depot.  Cybersource processed $120B through Visa in 2009 and 90% of its revenue is in recurring business.  Is Visa crossing the line into merchant processing, where they would reap revenues from transaction processing services as well as from the assessments it charges to merchants?  Not according to Visa.

“PayPal has 78 million accounts in 190 markets around the world.”

During a conference call held on April 21, Visa discussed how their strategic focus will be on “growth in the ecommerce sector by increasing the usage of Visa core products, using Visa’s client relations to drive global expansion, building on CyberSource’s merchant relationships to grow Visa ecommerce solutions and delivering best-in-class fraud management and data hosting solutions”.  According to Visa Chairman and Chief Executive Joseph Saunders, Cybersource wants to expand into the international market, primarily Latin America and Asia, through Visa’s global presence.  Last year, only about 8% of Cybersource’s revenue came from outside the U.S.

Visa is trying to find ways to compete with other ecommerce companies, such as PayPal, who has 78 million accounts in 190 markets around the world.  Although Visa has a strong global presence, the company wants to expand into global ecommerce markets where mobile payments are becoming more mainstream, primarily due to the lack of infrastructure for processing card payments.  Cybersource will help them get there with its strong foothold in mobile payment systems.

Ecommerce is a hot area for many companies trying to expand globally.  MasterCard’s next CEO, Ajay Banga, identified emerging markets and ecommerce as priorities for the company and it has created a new global research and development unit for that purpose.  MasterCard also recently revealed that it is opening up an online mall (“MasterCard Set to Open an Online Shopping Mall“) and Walmart is increasing its global ecommerce efforts (“Wal-Mart Ramps Up Online Efforts Globally“).

Visa is also planning to roll out their new Right Click by Visa product – which will enable consumers to comparison shop online, solicit feedback from friends, and checkout faster – sometime this summer.  Moving towards the year 2015, Visa’s strategic goals include “global diversification, entering new businesses, growing VisaNet transactions, and becoming a global top 75 company through market growth”.  Currently, 59% of Visa’s revenue comes from U.S. consumers.

For those concerned about Visa crossing the line into the acquiring world, sit tight.  On the April 21 call, they cleared the air by stating that Cybersource will move out of the processing business, referring merchants to financial institutions that partner with Visa.

A copy of the presentation used on the April 21 conference call can be found here.

Operating Guideline Changes

Visa and MasterCard both instituted changes in their operating guidelines in response to consumer disputes about card not present transactions and direct response products and services.  MasterCard’s actions followed policy changes from Visa regarding descriptor formats and disclosure of corporate entities related to direct response offers.  While the changes concern online marketers and merchants, they also affect direct mail and telephone marketing businesses.

“Remember the Columbia Record Club?  They are a prime example of negative option marketing, which shows that it has been around a long time.“

MasterCard communicated their “Direct Marketing Best Practices” guidelines to their acquirers and direct response marketers to further enforce compliance.  The guidelines focus on terms disclosure,  trial offers, marketing, endorsements and testimonials, affiliate marketing (CPA) networks, billing timeframes, refund policies, back end offers (up-sells, cross-sells), descriptors, order fulfillment, and customer service.

Of course these changes are meant to protect the consumer.  However, any business affected by these changes should think positive.  Consumer complaints can turn into negative publicity (and subsequently, reduced revenue) for any company.  Let’s not forget increased chargeback ratios, which no merchant desires.

A Little History

The Federal Trade Commission (FTC) was created in 1914 to prohibit unfair competition and practices in commerce.  The agency enforces laws targeting specific marketing practices and product promotions, such as environmental claims, free products, mail and telephone orders, and negative option offers.  Section 5 of the FTC Act prohibits unfair and deceptive practices – more specifically, advertising and marketing, in any medium, to consumers.  Section 5 describes a product or service as deceptive if it misleads the consumer or affects consumer behavior.  Additionally, product claims (i.e. “xyz product” prevents illness) must be substantiated, especially if they concern health, safety or performance.  The key marketing principles listed in the Negative Option staff report are meant to guide the industry in compliance with Section 5 of the Act.

“The FTC Act prohibits unfair or deceptive advertising in any medium”

The FTC also implemented changes to its Guides Concerning the Use of Endorsements and Testimonials in Advertising in December, clarifying that “advertisers are subject to liability for false or unsubstantiated statements made through endorsements, and that endorsers also may be liable for statements made in the course of their endorsements.”

California Is Taking Action As Well

On a similar wavelength, a new bill, SB 340, regarding automatic renewal and continuous service offers was signed into law in October in California.  SB 340 came to light following a 2006 lawsuit against Time, Inc., for automatic renewal offers and solicitations.  Twenty three states received complaints from consumers, which resulted in an extensive investigation.  Time was billing or automatically charging consumers’ credit cards for magazine subscriptions without consent.  The company had changed their renewal policy and instead of subscribers actively renewing, they instead required subscribers to actively cancel their subscriptions.  Else, the renewal was automatic. The renewal policy always appeared in fine print and was not clearly stated.

SB 340 requires businesses to state “clearly and conspicuously” the renewal terms and obtain the subscriber’s approval at the time of purchase.  Clear and conspicuous is defined as “in larger type than the surrounding text or in contrasting type, font or color.”  In the case of telephone marketers, the audio disclosure must be “audible and understandable.”  It also requires the inclusion of a cancellation policy with the renewal offer and an easy way for the subscriber to cancel.  The bill goes into effect on December 1, 2010.

Per the FTC Act, sellers are responsible for product and service claims.  Third parties, such as advertising agencies, web site designers and catalog marketers, can also be found liable for product deceptions and unfair competition practices.  Those found to be non-compliant could face enforcement by the FTC as well as civil lawsuits.  Punishment includes cease and desist orders, fines up to $16,000 (per violation), federal injunctions, and consumer refunds.

Additional Resources:

• Direct Marketing Best Practices
• FTC Negative Option staff report
• FTC staff paper, Dot Com Disclosures, about online advertising
• FTC Guides Concerning the Use of Endorsements and Testimonials

As one of the first brick and mortar retailers go to online, 1-800-Flowers continues to lead the pack in thinking outside the box. Started as a single flower store in the 70s, the company launched a toll-free brand in the 80s and then evolved into one of the first online retailers in the mid-90s. Already utilizing mobile phone apps and Twitter, Facebook adds another avenue where the company is finding ways to go directly to the consumer, rather than waiting for the consumers to come to their web site.

“Facebook was the world’s fourth most visited web site in June… “

According to Alexa, a web information research company, Facebook users spend, on average, 30 minutes a day on the site. This gives online retailers, with at least a Facebook “fan” page, more opportunity to capture the attention of their current and future customers. It’s about allowing the consumer as many avenues for purchase as possible.

In addition to 1-800-Flowers’ fan page, followers can also post comments, provide feedback and publish links on their profiles. The company also provides apps for iPhones, Blackberrys and Androids, as well as a basic mobile site, where consumers can shop the Mobile Gift Center and receive SMS offers via their mobile phone.

Besides being a company which seems to forge new marketing paths, 1-800-Flowers needs to throw a pretty wide net out there to catch consumers. 1-800-Flowers’ target market is larger than consumers looking to send flowers, since the acquisition of several companies over the years has expanded its basic product line to include popcorn and specialty treats, cookies and baked goods, premium chocolates and confections, gourmet foods, wine gifts, gift baskets, home décor and children’s gifts.

With its 250 million member base, Facebook was the world’s fourth most visited web site in June, according to figures from comScore, an Internet marketing research firm. So far, Facebook has become a very strong marketing platform (hence the word “viral” that has been added to the original “social networking” term). However, based on other known security issues, the site’s payment platform still has analysts and developers wary of using the site for payment checkout. 1-800-Flowers uses an embedded transactional advertising widget, which operates as a fully functioning storefront. To serve its new e-commerce channel, Facebook is developing a new electronic payments system that might compete with Paypal. Facebook’s Vice President of Product, Christopher Cox, said “software developers who sell applications on Facebook are testing the payments system, but it is unclear whether the company will manage e-commerce transactions across the Web.”

Similar to offering alternative payments, merchants can stay ahead of the curve by regularly finding new ways to maintain their current customer base and reach new consumers. They need to be thinking – “where is my target customer spending their time?” The old adage of “build it and they will come” doesn’t apply in every situation – especially in today’s virtual world.

Okay, so what exactly does that mean?  Well, traditionally, merchants only had the option of accepting electronic payments online in the form of bank drafts, and debit and credit cards from the major card brands – Visa, MasterCard, American Express, Diners Club and JCB.  That is until payment product innovators discovered that merchants were losing potential business from consumers who did not have bank accounts or credit cards.  Most importantly, in the ecommerce space, some consumers are simply wary of using cards and bank account information for online transactions because of the fraud risk.  Most of this concern stems from consumers’ lack of trust in web site security.  Additionally, with card companies cutting cardholder credit limits, alternative payment methods are the only option.

Merchants:  Think Outside the Credit Card Box

Merchants not offering alternative payment options online are limited to accepting cash, money orders or checks from those customers.  Checks require clearing and cash can only be paid in person.  Those options can delay revenue (or limit or restrict revenue in the case of a check not clearing) for the merchant. Merchants offering payment alternatives reach a wider consumer base and satisfy more customers as a result.

Merchants operating ecommerce portals should consider two avenues when researching and implementing alternative payment options:

• Offering a variety of payment methods, such as PayPal^™, Bill Me Later^®, Google^™ Checkout and RevolutionCard (a physical card and new payment network)
• Enabling the acceptance of foreign currency

PayPal^™ has a large consumer base of roughly 150 million users.  Bill Me Later^® was acquired by eBay (PayPal’s parent) last year.  RevolutionCard^™, the first PIN-based credit card, is not embossed, so no personal data is stored on it.  There are smaller players in the market as well, but they have yet to take as much hold as these industry leaders.

Click and Buy, a payment system based in London, offers 126 different currencies and 46 different payment methods to their merchants.  According to an alternative payment study conducted by YouGov for Click and Buy, more than 50% of regular online shoppers will cancel a potential purchase if their preferred payment method is not available.  Although U.S. online retailers are not pressured as much for foreign currency acceptance (major brands are accepted internationally, but cardholders are charged foreign exchange fees), it would certainly enable a merchant to grow globally.

Ecommerce merchants are becoming favorable to alternative payment offerings, simply to reduce their expenses in relation to interchange fees, which have risen 25 to 90 percent (depending on card type and a merchant’s business operations) over the last 20 years.  PayPal doesn’t pass along interchange fees and Revolution Money’s RevolutionCard saves merchants money by charging no interchange fees and lower processing fees per transaction than major card brands.  Merchants are turning these savings into loyalty and cash-back programs for their customers.

Looking Forward:  The Future is a Bright Alternative

Innovation in alternative payment products has been primarily outside the banking world.  Research consulting firm Celent estimates that by 2012, banks will see a decline of $1.2 billion in interchange revenue due to increasing acceptance of online alternative payments. Banking institutions are adopting alternative payment options of their own – for their customers as well as merchants.  Secure Vault Payments, a new payment solution, is now offered by NACHA, the electronics payment association that oversees the Automated Clearing House (ACH) network, (the electronic network for financial institution transactions in the U.S.)  Labeled NACHA SVP, it is an up and coming contender in the alternative payment space.  It is helping banks to retain customers and expand their merchant offerings.  Still in its infancy, it has become popular in the education industry.  The University of Georgia launched SVP in April as a new tuition payment option.  Other educational institutions are following suit.

Celent also estimated that by 2013, online payments will climb to $268 billion and 30% of those payments will come from alternative payment sources.  This increased market acceptance will certainly move alternative payments into the mainstream.

There are still some advantages to retail shopping, such as many people like the ability to see and touch what they are buying. However, that will not stop online sales from reaching as high as $176.9 Billion in 2010. Amazon.com and eBay have significantly discounted their merchandise over the past year to compete with retail stores. The National Retail Foundation forecasts that traditional retail sales will drop .5% in 2009.

The many advantages to shopping online will propel ecommerce in 2010. To name a few, shoppers can compare prices on items without having to leave the comfort of their home, shopping online is less time consuming, and it saves gas money. Although ecommerce shopping is fast and easy, it is important to protect yourself.

Here are a few items to keep in mind when shopping online:

1. Make purchases on sites that are well known and trusted.
2. Do not give out any information over the phone. There are con artists out there that watch for online purchases and then call you to confirm your information. If you order online, they do not need your credit card information again.
3. Make sure the site you make a purchase on is taking you to a secure page to make your purchases. Typically, you will see the beginning of the URL change to HTTPS.

Ecommerce businesses owners should understand that with more purchases, they will also see a rise in disputes. Make sure to resolve all disputes to eliminate high chargeback ratios. Some people are what I call “online shopping snakes.” They purchase items online and then dispute them to get out of paying for the item. It is important for ecommerce businesses to have clear terms and conditions to try and avoid this from happening. Having good reporting and records of all purchases is the key to ensuring your online business gets to enjoy its fair share of the flourishing ecommerce market.

Once your business is online and your shopping cart has been built, you have to select a payment gateway. Many merchants select their payment gateway based on what their merchant services provider tells them. There are hundreds of payment gateway options out there, and not all of them measure up.

A gateway facilitates your online payments by connecting your secure order from your merchant account to a processing bank. Something as important as the transfer of money should take some research. When selecting a gateway, consider available features, reliability, and support.

Some well known gateway options may not be your best bet. Authorize.net is a gateway that offers nothing more than a name. When it comes to support, this popular option falls short on all levels. Forty-five minute hold times, getting the run around from the help desk, and being a one trick pony are all this gateway has to offer.

An important item to look for in a gateway is ease of integration. If you don’t have a lot of money to spend on programming, or you are new to programming, you should select a gateway that allows you to follow some easy copy and paste steps to get your site up and running with all the payment options needed. A payment gateway should have a platform for identifying and preventing chargebacks without you having to take time out of running your business.

Some additional features to look for are a robust CRM and a strong customer database so you can run promotions and take care of your customers. A good payment gateway allows you to take payments in multiple fashions, such as recurring billing, bill me later, and ACH. There are gateways out there that even do your marketing for you. One such product is the Check-Out Box .

When selecting which gateway is going to support your business, cost should be the last deciding factor. Many online gateways may have low startup costs, but have hidden costs for additional features. For example, Authorize.net considers E-check and recurring billing to be additional features with additional charges.

I hope this sheds some light on those of you looking for a gateway solution. I invite those looking for a strong gateway to ask questions and give their opinions on gateway experiences you have had.

Consumers in the United States spend billions of dollars over the internet each year, and it is reported by MasterCard that the majority of the purchases are made without using SET. Most merchants who sell over the internet are using Secure Sockets Layer (SSL) for their internet stores. Typically this would be enough, but fraud is on the rise.  The economy is contributing to increased instances of internet theft and identity theft.

SET was created back in 1997 to take the process of security a step further by allowing the use of digital IDs to vouch for the identity of the merchant selling the product, as well as the consumer making the purchase. SET is widely used in Europe and is said to be a headache to use. The process is tedious and requires the buyer to place electronic software on their PC to obtain the digital ID from their credit card issuer to vouch for their identity. It is difficult to distribute this many digital IDs and software loads without hiring access staff.

Here we are over a decade later and this technology is still on the back burner, even though it is highly recommended that SET be used by everyone. In order for SET to work, the customer must have a SET-enabled browser and the transaction provider or storefront must have a SET-enabled server. The customer will receive a digital certificate that functions as an electronic credit card for online purchases. It will include a public key with an expiration date and will have been through a digital switch to a bank to ensure its validity.

For more detailed information about SET you can visit Visa, MasterCard or your bank’s website.

As more and more financial institutions struggle and the unemployment rate begin to increase, issuers are going to begin offering less credit to card holders. This means that less people are going to have the ability to make purchases. Many business owners will be impacted by less spending.

Some options many merchants are turning to are:

• Bill Me Later, which allows shoppers to buy items without having to use a credit card.
• PayByCash allows a variety of different payment methods that can be used in multiple countries.
• CashU is widely used on Internet purchases. This system allows you to add credits to your cashU account using refill coupons and then use those credits on its network of affiliated merchants to make your payments.

Of course in this current financial crisis, retailers should be on the lookout for more fraud. Many furniture stores and other types of businesses that normally require some type of financing are still extending credit. So we are not drowning yet. My opinion is that most people will continue to use credit cards – it’s human nature.

There are many different shopping cart options for people to choose. Every online business is different, and shopping carts are customized to fit your business needs.

First, when looking for your business’s shopping cart, it is important to know what features you would like it to accommodate. Most shopping carts can total orders, calculate tax and shipping costs, and transmit information via a payment gateway to process a sale.

The second important item to keep in mind when selecting your shopping cart is whether or not it is compatible with your payment gateway. Not all shopping carts like to play in the same sandbox. For example Authorize.net is a well known industry gateway. However, even this industry giant does not work with Yahoo’s shopping cart. It is always good to check with your web developer before signing up with a specific gateway. Some smaller gateways, such as Transaction Central, may be compatible with a limited number of shopping carts, but provides many customizable features.

Some other features to look for in a shopping cart are:

• Recurring billing capabilities
• Back end reporting
• Checks on-line
• Manual batching
• Multi-user access
• Future options – can peripherals be added if you choose to use this to expand your business to a retail store front?

It is also important to check with your web developer to make sure you get a SSL Certificate (Secure Sockets Layer). This is required by almost all gateways and ensures that card holder data traveling over the internet is encrypted. It is decrypted once it is received by the processor.

There are many shopping carts out in the market, so it’s best to write down all the features you want before beginning your search.