Of the many roles that e-tailers are assuming in their quest for the hearts and minds of consumers, the role of creditor may be the most unexpected.
However, a growing number of online businesses are now doubling as finance companies for their customers, and are realizing some surprising profits.
For example, PC Data figures show that the Thanksgiving weekend generated approximately $500 million (US$) for e-tailers, and almost all of those sales were conducted via credit card. As it turns out, much of that activity came as a result of “instant credit” that was supplied by the e-tail site itself.
The process is simple: Online customers find the items that they want to purchase, click for credit approval, and complete the transaction. In some cases, the whole experience takes about 30 seconds. The consumer’s buying power is extended, and merchants are delighted to find fewer abandoned shopping carts.
At the same time, e-tailers are forging strategic partnerships with credit card companies to drive revenues skyward.
Amazon.com, for example, is co-branding a credit card with NextCard in a deal that nets the online powerhouse a hefty ten percent. The arrangement could translate into revenues of $150 million in three years.
Similarly, Alta Vista’s new relationship with Fleet Credit Card Services could net the company $50 million in three years.
The concept is not new. AOL partnered with First USA in 1996 for a co-branded card. When the deal came up for re-negotiation early this year, First USA paid AOL a respectable $500 million.
Keeping in mind that most e-tailers are not yet realizing a profit in their online ventures, every dollar counts. By 2003, according to Forrester Research, 40 million U.S. households will make online purchases totaling $108 billion.
Heading Off Credit Card Fraud
Still, merchants are concerned with online credit card fraud that could significantly alter these plans. Those fears, while not unrealistic, are starting to be put to rest via smart new technology.
The relatively new American Express blue card, for example, has an embedded computer chip that can access the user’s personal information. Also, many desktops may soon include a credit card reading device that plugs into the user’s PC and lets them swipe the card at home as they would in a retail store.
Other devices on the horizon will not only enable the consumer to swipe the credit card, but will also interact with the user’s PC and ask for a unique personal identification number before the sale can be processed.