eBay: Just Playing It Safe

eBay's (Nasdaq: EBAY) recent decision to ban Google (Nasdaq: GOOG) Checkout as an acceptable payment method raised the eyebrows of some in the online community who cried that the restriction is unfair to consumers. Yet the move opens up a debate as to how online merchants should balance the risks and benefits of accepting alternative payment methods.

On July 6, Rob Chesnut, senior vice president of eBay's global Trust and Safety organization, placed a message on the company's Web site, informing the public that eBay had changed its global payments policy, which it had first introduced in October 2005.

The current accepted payment options include credit cards, debit cards, bank-to-bank transfers, PayPal and cash on delivery as well as about a dozen nontraditional methods such as cash2india, hyperwallet.com and Paymate.com.au.

Google Checkout -- and roughly three dozen other alternative methods such as GearPay, Moneygram.com, sendmoneyorder.com, Stormpay and wmtransfer.com -- have been designated as unacceptable.

Violations of eBay's policy could result in a range of actions including listing cancellation, forfeit of eBay fees on canceled listings, limits on account privileges, loss of PowerSeller status and account suspension.

Google Late to the Game

"We have the policy in place to make sure our marketplace offers a variety of choices, but those choices are safe," Catherine England, an eBay spokesperson, told the E-commerce Times. "We spell out several factors we take into consideration, including making sure the providers have a substantial historical track record of having safe methods of transaction services. We don't have a lot of insight into if, and how, the market will use Google Checkout."

Google assures shoppers that they can enhance their security when making purchases through Google Checkout because the service conceals the buyer's credit card number and provides reimbursement for unauthorized purchases. However, the service was only announced in July.

If Google Checkout proves itself, eBay eventually may consider it as an option, according to England. "In general, we're constantly trying to communicate with buyers and sellers to see what they want," she said. "Decisions are based on demand from our customers and looking to protect our community from a safety/fraud perspective."

In addition to those criteria, eBay also will consider the following factors, among others, in making its determination, according to the company's policy:

• Whether the payment model offers substantial financial, privacy and anti-fraud protection for buyers and sellers.
• Whether the payment model raises the potential for confusion among eBay users or involves incentives that may present fraud concerns.
• The identity, background and other business interests of the payment service sponsor.
• The license/regulatory status of the payment provider in the countries where it provides payment services.

Cautious Decisions

When it comes to payment options, online merchants should err on the side of caution, Nick Selby, a senior analyst with The 451 Group, told the E-Commerce Times.

"Retailers are trying to conduct business in a medium that is known to be fraught with security risks," he notes, "and through bitter experience and trial and error, they've come up with a balance of payment methods that allow them to conduct business to as wide an audience as possible without exposing them to unnecessary risk.

"They've struck a balance that's comfortable -- that's letting them grow online sales -- and nobody's eager to throw that out of balance," he said.

England cited Western Union as an example of a risky option, noting that eBay changed the name of its policy from "Safe Payments" to "Accepted Payments," recognizing that many options it doesn't recognize as safe within its own community are appropriate in other situations.

The company has seen a correlation between attempted fraud and sellers who will only accept Western Union as a method of payment, she said. "It's great when you know who you're sending money to, but not when you're sending money to a stranger. Once you send it that way, the money is pretty much gone."

Cost of Restrictions

On the other hand, restricting options for consumers may also be reducing wallet share for companies like eBay, suggested Ed Kountz, a JupiterResearch senior analyst focusing on payments.

"The advantage of accepting money orders or transfers [is] you may be able to tap into customers who are not comfortable using traditional online payment criteria, [although] that market is not big," Kountz told the E-commerce Times.

He acknowledged that most of these methods take some time to clear, however, and that it can be difficult to ensure the payments are valid and harder to trace if something is wrong.

"It's understandable that retailers will be skeptical of any kind of new method that doesn't provide the same level of reliability as the payment methods they have now," Selby said.