Alternative Payment Options:

Converting Hesitant Shoppers

into Confident Spenders

A report from eBillme

eBillme April 2008

2207 Concord Pike, #510
Wilmington, DE 19803-2908
866-365-6632
www.eBillme.com

Copyright ©2001-2008 MODASolutions Corporation. All rights reserved.

Copyright in all information on this document is owned by MODASolutions Corporation (“MODASolutions”).
Table of Contents
1. Executive Summary ......................................................................3
The primary concerns facing online shoppers .................................................................... 3
About the study ................................................................................................................... 5

2. The Hesitant Shopper ...................................................................6

Disconnect at the checkout................................................................................................. 7
Breach of security ............................................................................................................... 9

3. Consumers Want More ...............................................................10

4. The Merchant Perspective..........................................................11
Reducing costs.................................................................................................................. 11
The high cost of fraud ....................................................................................................... 11
Attracting the consumer .................................................................................................... 11
Cash-based payment options ........................................................................................... 11
Consumers who pay cash spend more............................................................................. 12

5. Online Banking Security at the Checkout.................................14

The alternative to debit cards............................................................................................ 14

6. Building Confidence ...................................................................15

Peace of mind ................................................................................................................... 15
Ease of use ....................................................................................................................... 15

7. Conclusion...................................................................................16
8. Online Resources........................................................................17

Copyright ©2001-2008 MODASolutions Corporation. All rights reserved.

Copyright in all information on this document is owned by MODASolutions Corporation (“MODASolutions”).
1. Executive Summary
While pundits were predicting a soft holiday shopping season for 2007, online retailers across the board
were experiencing significant growth. According to ComScore, the 2007 online holiday shopping season
surpassed $29 billion in sales, up 19% from last year 1 . eCommerce has become routine for many
shoppers and in 2007, it is estimated that $175 billion in spending occurred online. Analysts, merchants,
and retailers project significant growth for online shopping, with Forrester estimating that, “US online retail
is projected to grow to $335 billion by 2012.” 2

However, despite these indications of positive growth, overall conversion on merchant sites remains low -
averaging 2 to 3% 3 depending on the industry. Online fraud and apprehension about information security
remain key concerns plaguing online shopping customers. Unhappy with the standard offerings from their
credit card and debit card providers, consumers have started to shift to alternative payment options - an
industry segment expected to reach 30% by 2012 4 . While some of the leading alternatives offer a
measure of additional security, consumers are still not completely satisfied. They are concerned about the
amount of sensitive information obtained by payment providers and the overall protection of their orders.
Consumers need to have peace of mind with every order they place.

In late 2007, JupiterResearch conducted a study, commissioned by eBillme, which evaluated consumers’
considerations when selecting a payment method online and examined potential opportunities for online
merchants to convert these hesitant shoppers into confident buyers. The results provide merchants with a
glimpse into the mindset of a consumer. By offering customers protection during the entire checkout
process, eBillme believes that merchants will increase conversion, attract new shoppers, and achieve
higher average order values (AOV).

The primary concerns facing online shoppers

Estimates show that 74 million consumers who use the Internet 5 do not buy online. This is a staggering
number and this white paper will attempt to address the reasons behind this behavior. The survey
conducted by Jupiter revealed that there are two significant fears that consumers must overcome before
they shop online:
1) Security: Perceived lack of security when entering personal or financial information.
2) Protection: Uncertainty after checkout. The key problem with credit, and especially debit card,
transactions is that a consumer is left confused in regards to their liability. This creates an
atmosphere of anxiety and unease amongst online shoppers after they have checked out.

1
http://www.comscore.com/press/release.asp?press=1990
2
http://www.forrester.com/Research/Document/Excerpt/0,7211,41592,00.html
3
http://www.zeald.com/Resources/Ebusiness+Statistics++Benchmarks/US+E-Commerce+Website+Conversion+rates+-
+April+9+2007.html
4
http://www.wwpi.com/index.php?option=com_content&task=view&id=2780&Itemid=128
5
Gartner and JupiterResearch, Online Bill Viewing and Payment Forecast, 2003-2008

3
The opportunity
Merchants are now provided with the opportunity to convert hesitant browsers into confident buyers by
providing them with a sense of security and peace of mind. The vast majority of online shoppers (77%)
have stated that they would be willing to adapt to changes in the online payment process if it resulted in
enhanced security.

Merchants who offer a payment method that protects both themselves and their consumers from fraud,
while simultaneously providing an enhanced buyer protection service, will see immediate results in new
customer acquisition and increased order values.

Source: JupiterResearch/Ipsos Insight Consumer Survey (11/07), n = 1,641 (Online shoppers who paid with a credit card online);
n=1,046 (Online shoppers who paid with a debit card online); n=134 (Online shoppers who paid with a cash-based alternative
payment solution online), US only

4
About the study
In November 2007, JupiterResearch designed and fielded a survey to online consumers selected
randomly from the Ipsos US online consumer panel. A total of 2,706 individuals responded to the survey
and were asked approximately 40 closed-ended questions. These questions addressed their behaviors,
attitudes and preferences as they relate to customer service and support, search behavior, use of ISP
portals, politics, and wireless research. Respondents received an email invitation to participate in the
survey with an attached URL linked to the web-based survey form. The samples were carefully balanced
by a series of demographic and behavioral characteristics to ensure that they were representative of the
online population. Demographic weighting variables included age, gender, household income, household
education, household type, region, market size, race and Hispanic ethnicity. Additionally, JupiterResearch
weighed the data by AOL usage, online tenure, and connection speed (broadband versus dial-up), three
key determinants of online behavior. Balancing quotas are derived from JupiterResearch's Internet
Population Model which relies on US Census Bureau data and a rich foundation of primary consumer
survey research to determine the size, demographics and ethnographics of the US online population. The
survey data are fully applicable to the US online population within a confidence interval of plus or minus
3%.

In this survey effort, JupiterResearch worked with its research partner, Ipsos-Insight, on the technical
tasks of survey fielding, sample building, balancing, and data processing. Ipsos-Insight is one of the
largest market research companies in the US and maintains a general research panel of 400,000
households. Ipsos-Insight also has access to the Ipsos US Online Panel, which comprises two million
Internet users, offering JupiterResearch an easy way to target and survey current online users. Panel-
based market research enables researchers to have baseline knowledge of each survey respondent,
increase survey participation rates, and permit careful rationing of survey fielding to reduce survey
burnout.

5
2. The Hesitant Shopper
Who is the hesitant shopper and what makes them so reluctant to shop online? Why do they go to the
trouble of filling their virtual carts, saving them, creating accounts at merchant sites, and then seemingly
without explanation, they abandon the cart and leave the site? Perhaps they did not find that amazing
deal that included free shipping or an instant rebate. Or, maybe they did find that unique product, but they
were concerned about the security of the site or the available payment options. Shoppers may also worry
about not receiving their item intact – what if it breaks during shipping? Some simply worry that the
product might not be what they wanted, and there will be a complicated process involved to return it.
Admittedly for many, identity theft is a key concern. The concern over security and fraud is highlighted in
the survey which reveals that protection against fraud is the most important factor, with 80% of online
shoppers taking this into consideration when selecting their payment option.

Percentage of Online Shoppers

Source: JupiterResearch/Ipsos Insight Consumer Survey (11/07), n = 2,275 (Online shoppers, US only)

6
Disconnect at the checkout
Online shoppers have repeatedly expressed that they are extremely concerned with security and
protection for both their financial information and their purchases. However, a staggering majority of credit
and debit card users have no idea as to what they are liable for should they find themselves a victim of
fraud.

Credit Cards
Credit cards remain the de facto choice when it comes to online payment options, with 61% of online
shoppers choosing to checkout with a credit card. Although credit cards are used frequently, it must be
highlighted that their online use has declined significantly over the years and is expected to continue to
decline as mentioned by Forrester Research. The decline is not surprising. 77% of online shoppers who
use credit cards state that they would gladly adapt to changes in the online checkout/payment process if
the goal is to enhance security.

There is no question that as a payment method, credit cards offer convenience and adequate fraud
protection for the user. Consumers who use their credit cards for online purchases are relatively well
protected from fraudulent use of their card. However, even though The Federal Truth in Lending Act limits
any liability for fraudulent charges to $50, an overwhelming number of shoppers had no idea what they
were liable for. The study showed that 68% of credit card users simply do not know what their maximum
liability is. Based on the distribution of other responses from the survey on this topic, it is clear that there
is a high level of confusion as to the definition of maximum liability coverage, even among those who
think they know what their level of maximum liability coverage might be. This proves that the vast majority
of credit card users are unclear about their coverage.

Source: JupiterResearch/Ipsos Insight Consumer Survey (11/07), n = 1,641 (Online shoppers who paid with a credit card online),
US only

The majority of those surveyed were confused regarding the definition of maximum liability coverage
under different payment methods, and with 80% of online shoppers concerned about fraud, uncertainty
and hesitation play a key role in cart abandonment.

7
Debit Cards
Under federal law, liability for fraudulent charges on a debit card can be greater than it is for a credit card.
With a credit card, the card holder is only responsible for up to $50 in unauthorized purchases. With a
debit card, the loss can be up to $500 if the theft or loss of the card or PIN is not reported within two
business days of discovering the problem. If the cardholder fails to report the unauthorized charges within
60 days of the date of the statement that lists them, they could be held liable for any unauthorized
withdrawals after that date. Those include the full value of credit lines and funds in savings linked to their
checking account for overdraft protection.

Source: JupiterResearch/Ipsos Insight Consumer Survey (11/07), n=1,046 (Online shoppers who paid with a debit card online), US
only

Similar to credit card users, 65% of those who use a debit card reported that they do not know what their
fraud liability is. Given that debit card liability is more complicated than that of credit cards, it is
understandable that the remaining respondents were confused regarding the definition of maximum
liability coverage. Once again, the majority of survey respondents had no idea what they were liable for if
their debit card was compromised.

The hidden costs

Debit cards actually end up costing the user more than credit cards once all the costs are tallied up, and
they offer much less protection against fraud.

At first glance, it would appear that debit cards are an easy non-credit choice for online shoppers.
However, their convenience can come at a hidden cost for the user who does not keep a close eye on
their bank account. At one time, banks would refuse any debit card transaction that would overdraw a
depositor’s account, but this is not the case anymore. Most financial institutions automatically enroll their
depositors in a program that loans them the amount of the overdraft at a steep price, rather than notifying
them when their accounts are close to being overdrawn. The Center for Responsible Lending estimates
that banks who offer these lending programs can expect a sharp increase in overdraft revenues - as
much as 200 to 400 percent!

The Federal Reserve reports that debit card transactions have been growing more than 20% annually. At
the majority of online checkouts, debit cards are the only option for the consumer who is looking to
maintain control of their finances and pay merchants immediately and directly from available funds.
However, the unsettling reality is that 65% of debit card users reported that they do not know what their
fraud liability is, and online debit cards are far more likely to be compromised than credit cards.

8
Breach of security
In addition to protection from payment fraud, online users are increasingly worried about identity theft.
Headline news reporting the theft of millions of credit and debit-card numbers stolen from large online
retailers highlights the vulnerability of consumers' financial data. As consumers lose confidence in a
merchant’s ability to protect sensitive information, they become much less likely to share personal and
financial information online.

9
3. Consumers Want More
In order for online merchants to convert hesitant shoppers into confident buyers, they need to offer their
customers peace of mind. According to the study, peace of mind does not stop at offering additional
security and fraud protection. Consumers are looking for an entire package that protects both them and
their purchases. A merchant who offers their customers a lowest price and satisfaction guarantee, in
transit protection against damages, and payment protection against unauthorized transactions has the
opportunity to capture a shopper who might have simply abandoned their shopping cart at the checkout.

When considering which payment method to choose for purchasing goods and services online,
which of the following considerations are most important to you?

Percentage of Online Shoppers

Source: JupiterResearch/Ipsos Insight Consumer Survey (11/07), n = 2,275 (Online shoppers, US only)

The individual elements of a comprehensive buyer protection plan resonate more strongly with
consumers than any of the points or loyalty programs offered by some credit and debit cards. Almost 5
times as many people ranked protection from fraud as having much greater importance over incentive
plans. 60% of credit card users and 56% of debit card users prefer a satisfaction guarantee; ranking it
over 3 times more important than rewards for their purchases. 45% of credit card users and 50% of debit
card users value price protection and being offered the lowest available price. This proves that customers
are not looking for intangible rewards. They want the guarantee that their purchases and their money are
protected.

10
4. The Merchant Perspective
Reducing costs
Transaction fees for online payments represent one of a merchant’s biggest expenses. On average,
processing credit and debit card transactions can cost merchants 3% to 5% of total revenue on a fully
loaded basis. Even worse, merchants pay higher interchange fees for debit card over credit card
transactions. By offering their consumers a cash-based payment option as an alternative to using their
debit card, merchants can significantly decrease their transaction fees.

The high cost of fraud

Preventing fraud is of paramount importance to merchants. The total dollar loss from online payment
fraud is growing at the rate of about 20% a year. According to CyberSource Corp.’s 2008 Online Fraud
Report, it is estimated at $3.6 billion in 2007, up from $3.1 billion in 2006. This clearly signals the need for
online payment options that incorporate reliable customer authentication for each transaction.

Although direct fraud loss represents only 1% of orders, costs associated with risk management
procedures, tighter screening, and manual order review are significant. Tighter detection tools lead to a
rejection of up to 4% of orders, some of which are valid. Manual reviews of transactions, established to
prevent fraud, are both labor and cost intensive. Up to 23% of orders are manually reviewed - an
overwhelming task for large-volume sites.

Attracting the consumer

Drawing consumers to their websites often comes at a cost and merchants spend a lot of money in an
attempt to lure prospective shoppers. On average, an outlay of $40 per customer is spent on advertising,
adwords, site development, usability research, etc. In order to offset this cost, merchants must convert
browsers to shoppers by reducing abandonment at the checkout and by increasing AOV.

Another factor in increasing sales is generating repeat orders and instilling customer loyalty. Repeat
orders stem from customer satisfaction with the purchasing experience. This experience not only relates
to the product itself and competitive pricing, but also the degree to which the consumer’s expectations are
met. A satisfied customer is likely to become a repeat customer.

Cash-based payment options

Merchants are anxious to find alternative payment options that provide access to more consumers while
reducing total costs, particularly those costs related to fraud, risk management and exception processing.
They are looking for a payment option that delivers low transaction fees, guaranteed payments with no
fraud, no NSFs, no chargebacks, and that delivers a higher average order value.

eBillme™ is the payment option that allows merchants to leverage the existing banking infrastructure by
enabling consumers to pay for Internet purchases at any bank, credit union, or bill pay portal that
supports online banking. Through online banking, merchants can harness an existing, established
consumer behavior (that of paying bills online) to pay for Internet purchases.

11
Consumers who pay cash spend more
Of particular interest to merchants looking to boost their average order value is the finding that when
asked on average how much money they had spent online in the past three months, the online shopper
who checked out using cash-based alternative payment options had spent more than those consumers
who used credit or debit cards.

Credit Cards: $354

Debit Cards: $273
Cash-Based Alternatives: $401
Source: JupiterResearch/Ipsos Insight Consumer Survey (11/07), n = 1,641 (Online shoppers who paid with a credit card online);
n=1,046 (Online shoppers who paid with a debit card online); n=134 (Online shoppers who paid with a cash-based alternative
payment solution online), US only

With the significant decline in the US market, the number of jobs shrinking, housing prices falling and debt
levels swelling, more Americans are most at ease with living within their means. Obviously, this has had
an impact on the online shopper who previously might have reached for their credit card and potentially
ran up more debt than they could handle.

The result is a shift to a consumer who uses cash for their purchases. As Americans begin to pay as they
go, they feel more comfortable spending by paying cash as opposed to putting the same amount on credit
and racking up interest fees and debt.

Online shoppers over the age of 25 were more likely to embrace a cash-based payment solution when
compared to their younger counterparts. This age group represents a population segment that is
classified as being in key family formation, and they are at a strong earnings growth life stage. They are
starting careers, buying homes, raising children, and have less leisure time. What this means for retailers
is that these consumers are comfortable spending cash for their purchases.

12
This age group also reiterated that fraud protection was 5 times more important to them than incentive
programs or rewards, and product satisfaction was one of their primary concerns when shopping online.

Percentage of Online Shoppers by Age

Source: JupiterResearch/Ipsos Insight Consumer Survey (11/07), n = 266 (Online shoppers aged 18-24); n=2,009 (Online shoppers
aged 25+), US only

Merchants can capture this lucrative and knowledgeable consumer segment by offering payment
solutions that allow online shoppers to pay cash for their purchases safely and securely, without
disclosing financial information.

13
5. Online Banking Security at the Checkout
84 million Americans currently bank online 6 , placing their confidence in the convenience and security of
their own bank. This trust is well founded, since banks have spent billions of dollars building secure and
reliable online banking systems that include services such as bill payment. Security features such as a
minimum standard of 128 bit encryption, user identification, authentication, authorization, system lockout,
automatic timeouts and double passwords are just some of the elements that offer protection and
enhanced peace of mind to users.

Unlike credit card companies who are free to create their own terms and conditions, American banks are
governed by Regulation E, of the Electronic Fund Transfer Act. This act establishes the basic rights,
liabilities, and responsibilities of consumers who use electronic fund transfer services and of financial
institutions that offer these services. The primary objective of the act is the protection of individual
consumers engaging in electronic fund transfers.

The alternative to debit cards

Leveraging the impressive growth of online banking and online bill payment is a critical step for a
merchant looking to capture this lucrative market segment. The ability to take advantage of the online bill
payment infrastructure stems from the reliability, robustness, scalability, and the critical mass of
consumers who use it.

eBillme provides the bridge between consumers, merchants and online banking. It enables consumers to
shop on the web or through call centers, and pay conveniently through their trusted banking portals. To
consumers, the functionality is familiar, since they already pay bills online, and they do not need to setup
a new account or fill out any application forms. eBillme works at any bank, credit union, or online bill pay
portal that offers online bill payment, making eBillme available at over 13,000 financial institutions.

6
http://www.emarketer.com/Reports/All/Emarketer_2000412.aspx?src=report_head_info_sitesearch

14
6. Building Confidence
By 2009, the number of Americans using online banking is forecast to grow to over 110 million. Offering
these individuals a safe, secure and easy-to-use online payment option is of critical importance to the
online merchant looking to increase conversion and boost sales.

eBillme, brought to you by MODASolutions, is the only online payment solution that extends the
convenience of online banking to the merchant’s checkout, reducing the security risks of shopping online
for both consumers and retailers. No financial data is exposed over the Internet to the retailer, and the
payment transaction is securely transferred from the customer’s bank to the retailer’s bank. Consumers
can shop online, by catalog or through call centers, and pay for their purchases at their bank, credit union,
or bill pay portal, with the security and convenience of online banking. eBillme allows retailers to access
the millions of Americans who currently use online banking.

Peace of mind
Giving customers peace of mind every time they checkout with the eBillme Buyer Protection
program.

Shoppers who pay with eBillme benefit from the eBillme Buyer Protection program, which gives
consumers who pay cash for their online purchases the enhanced security and assurance services
typically associated with premium credit cards. A lowest price guarantee, 100 percent purchase
satisfaction, in transit protection and payment protection ensure that a consumer can shop with complete
confidence. This program is managed by eBillme at no cost to the merchant.

When an online shopper pays with eBillme, they automatically qualify for the eBillme Buyer Protection
program, at no extra charge. eBillme purchases are protected by the following features:

• Price Protection: Ensures that customers get the best possible price by refunding the difference if
the same item is found at a lower price.
• Return Guarantee: Provides a money-back guarantee if the consumer is dissatisfied with their
purchase.
• In Transit Protection: Protects eBillme customers from loss, theft, or damages that may occur during
shipping.
• Payment Protection: Safeguards the buyer by providing zero liability for unauthorized transactions.

Ease of use
eBillme is fast, easy, and best of all - there is no signup therefore users never have to share their
financial information.

At checkout, shoppers simply select eBillme as their payment option and an electronic bill (eBill) is
presented to them to confirm their purchase. By following the instructions in the eBill, consumers login
directly to their online bank account and pay the invoice using available funds in their checking or savings
account. No financial data is exposed over the Internet to the retailer, and the payment transaction is
securely transferred from the customer’s bank to the retailer’s bank.

For more information on eBillme, please contact sales@eBillme.com and visit www.eBillme.com.

15
7. Conclusion
The number of online shoppers looking for alternative payment solutions continues to grow. By 2010, it is
expected that 15% of consumers will choose not to use their credit and debit cards online, opting instead
for payment options that offer security from fraud and enhanced buyer protection. It is obvious that online
shoppers are looking for options that give them a sense of choice and control.

By offering an alternative, cash-based payment option such as eBillme, online merchants have a
significant opportunity to tap into a consumer segment that values security, privacy, control, and
enhanced buyer protection when shopping online. Existing payment options have not addressed the fraud
and privacy concerns of the average consumer. Online banking brings the merchant 84 million
consumers who value security and who trust their banks when making payments. Using eBillme,
consumers can safely shop online with security and peace of mind not provided by credit and debit cards.

The eBillme Buyer Protection program is the only alternative payment option that provides premium credit
card protection to consumers who prefer to use cash. Customers can shop with complete confidence
knowing that every eBillme transaction is guaranteed and protected. By offering price protection and a
satisfaction guarantee, online merchants will increase sales and attract new customers. eBillme ensures
that consumers always have secure and successful online checkout experiences, converting hesitant
shoppers into confident spenders.

16
8. Online Resources
E-payment fraud reaches $3.6 billion for 2007, or 1.4% of sales, study says
http://www.internetretailer.com/dailyNews.asp?id=25394

The dark secrets of debt

http://www.consumerreports.org/cro/money/credit-loan/debit-cards/the-dark-secrets-of-debit-9-
07/overview/the-dark-secrets-of-debit-ov.htm?loginMethod=auto

Why you should never own a debit card

http://www.americanchronicle.com/articles/49784

Economy fitful, Americans start to pay as they go

http://www.nytimes.com/2008/02/05/business/05spend.html?_r=1&th&emc=th&oref=slogin

17