s it true that the more things change, the more they stay the same? Twenty years ago, it was impossible to imagine a payments landscape filled with so many different ways and places to make purchases. However, the existing options aren't necessarily filling the needs of merchants or consumers.

Have business models kept pace with the technology boom? Should there be more and better options for merchants and consumers beyond credit cards?

As the industry has grown (Visa U.S.A. reported more than $3 trillion in sales from its member banks in 2004), it's also become complex and expensive.

Merchants, for example, don't like interchange and other fees associated with using current payment networks. Consumers are leery of using credit cards, in response to the increasing frequency of fraud and data security breaches. Many have also charged their cards up to the limit or don't qualify for credit.

Why should more than 35 million "unbanked" U.S. consumers not be able to take part in the e-commerce bonanza?

PayPal might be the pariah of the payment industry for offering services that allow individuals and small merchants to conduct transactions and accept payments online. But the company's success also highlights a vast need within the market for something else beyond traditional card-type options.

Reports of PayPal's impressive growth reflect how it has stepped in to fill that need. Purchased by eBay in 2002 for $1.5 billion, PayPal had 72 million accounts worldwide and $19 billion in total payment volume in 2004. Today, the company is expanding at an annual rate of 44%.

Volume-wise, many merchants using PayPal probably aren't ready for merchant accounts, and until they reach a certain revenue level, PayPal's model is probably a good choice for them. But it doesn't work for all merchants, who wish they had other ways to accept payments from customers.

We spoke with several companies that offer a variety of payment options that provide that choice. Sometimes these transactions are called "real-time debit." Many of the solutions are based on withdrawing payments from a checking account but some are giving consumers without bank accounts ways to make online purchases or pay bills. The best part: For ISOs/merchant level salespeople (MLSs), going back to the future to explore cash-based options doesn't mean a lack of lucrative sales opportunities.

Moving Toward True Debit

When Ed Starrs, Chief Executive Officer of a brand new California-based company, MyECheck, wanted to provide merchants and consumers a viable alternative to credit cards, he came up with a model that he said is as close to real-time debit as it gets.

It also opens the door for increased merchant revenue.

"At least a third of the population can't make a purchase online with a credit card, so merchants who don't offer a check solution are missing a lot of potential sales," Starrs said.

The MyECheck solution uses the Federal Reserve Bank system (FedACH) for clearing electronic check transactions. It's compliant with Check Clearing for the 21st Century Act , or Check 21, regulations and incorporates patent-pending technology for fraud prevention and risk management for secure check transactions online.

"We're trying to achieve direct debit, and this method has the best chance" Starrs said. "This method of clearing checks is better than ACH, which is what all other e-check systems are based on now. It's faster, safer and more secure, and we've taken the additional steps to validate ID."

MyECheck authenticates users by accessing data providers including public records, collections and checks, which are aggregated in the system. Financial institutions provide either a real-time or morning-of balance for funds verification.

According to Starrs, there are 87 reasons an ACH transaction can be returned. At least 15% of the bank accounts in the United States have no ACH capability, and it can take up to 5 days for funds to post to merchant accounts. "None of that happens with our product," he said.

The MyECheck interface runs inside frames on the merchant's page so it appears to the customer they're still on the merchant site.

The company targets merchants by attending trade shows and through direct sales but Starrs said it also works with ISO/MLS and reseller channels.

E-Loyalty

Plug & Pay Technologies Inc. of Hauppauge, N.Y. specializes in offering merchants "the power to sell online," according to its motto, and provides a wide range of services such as gateways and business and risk management through its brand name, Plug 'n Pay.

By fall 2005, Plug 'n Pay will also roll out a solution for online merchants to set up their own stored value and gift card systems. Randy Ridings, the company's Vice President of Sales, said the Customer Connect solution is a response to what they've heard from their merchant customers.

"There's a growing groundswell of people who are a little tired of the monopolistic attitude of Visa and MasterCard, and the interchange rates," Ridings said. "They're looking for ways to get outside of the loop."

Merchants implement Customer Connect to suit their particular needs. "The key thing for e-commerce is to be able to develop loyalty, and stored value can do that," he said.

Customers load the cards with credit or debit cards or by ACH payments, on the merchant site or directly on Plug 'n Pay's site, depending on integration. Ridings said smaller merchants prefer the level of security that comes when they don't have to collect or store account information. Once the cards, which bear merchant logos, are issued, cardholders can access their accounts online to check balances and track purchases.

To entice customers to purchase and use cards, merchants can offer a range of incentives, fully manageable within the Plug 'n Pay system. Ridings said there are "modest" per transaction and reloading fees associated with the cards.

"It's not a credit card transaction, so it's a totally different animal," he said. "You don't have to go out for authorization, and there's no interchange. It's an in-house, closed-loop transaction which the Plug 'n Pay system drives."

Reserve Online, Pay With Cash Down the Street

The company whose name for generations has been synonymous with money transfers is giving consumers without credit cards ways to connect with online merchants to make purchases.

For more than 150 years, people have counted on First Data Corp. subsidiary Western Union to wire money; about 15 years ago it added bill payment to its services. Two years ago it started to look at other industries, including airlines, catalog companies, direct response retailers and online retailers, to devise ways for consumers to buy tickets and merchandise, over the telephone and electronically.

Donna Kennedy, Director of Business Development for Western Union Payment Services, said these arrangements allow people without a way to pay immediately to participate in e-commerce. That makes sense for merchants, who not only save on interchange fees, but increase the number of buyers on their sites.

"E-commerce is now ubiquitous. How can you rule out such a large portion of the market who don't have credit cards?" said Kennedy. "Merchants have indicated that their overall sales increase 20% by adding more than one payment option," Kennedy said.

"Any service you can offer that brings that consumer to you and lets them exercise purchase or payment options economically is definitely attractive," said Pat Frazier, Western Union Payment Service's Vice President.

The airline industry is one that has been seeking alternative payment methods, and Western Union's partnership with Continental Airlines is one of several it has with major domestic and international carriers. Frazier said it blends the best interests of merchants and consumers.

"It gets consumers to the Web site to check flight times and ticket prices," Frazier said. "If they choose to pay electronically they can do so, and if they don't choose to, they can reserve a seat and have a certain amount of time to get to a Western Union agent and pay for it."

With 50,000 Western Union agent locations in North America, 40% of which are in grocery stores, consumers don't have to go too far out of their way to pay cash for airline seats they reserved online.

Use This Simple Real-time Debit Service

A Canadian company set to make inroads into the U.S. market has learned a lot from merchants in the three years it's been in business. One of those, said Joseph Iuso, CEO of UseMyBank, is that when merchants give consumers the choice, they'll choose debit.

"The options have been really restricted to credit cards and prepaid systems or other payment schemes," Iuso said. "Until now, there hasn't really been a direct payment scheme. We're a new option. We're not really account-based, but rather, we're a transaction facilitator, sort of like a switch."

"Think of it as aggregating all the online banking for the sellers to transact with their consumers, and giving consumers the ability to make a payment from whatever online bank account they may have," Brian Crozier, the company's Director of Business Development, said.

What UseMyBank facilitates are real-time debit transactions through online bank accounts. Consumers with checking, savings, or other account types online access the service through merchant sites; at check out, they're given the option to click on the UseMyBank icon. A series of simple steps takes them through the completion of the transaction; they receive a receipt by e-mail.

Transactions are highly secure because there is no information going to the seller, and consumer data is not stored on its servers.

Reports on growth in the Canadian market show the company is now processing 1,000 transactions worth $100,000 every day; roughly 1,000 active online merchants and nearly 20,000 people use the service each month.

Iuso said they hope to introduce the UseMyBank service through several U.S banks in early fall. The caveat: Banks they partner with must offer direct, real-time debit. UseMyBank works with resellers who service such vertical markets as retail, airlines, subscriptions, travel, gaming and dating, and will develop those partnerships in this country.

A New Way to Pay Bills

Billeo is a different sort of spin on ways to expand payment possibilities on the Internet: It's a free-to-consumers, biller-direct Web site that enables users to view and pay a variety of bills such as utilities, mortgages and cell phones.

The company was founded in June 2003, but didn't roll out its service to consumers until January 2005. Online Banking Report awarded Billeo its Best of the Web award for 2005, the first given since PayPal's award in 1999.

Consumers and billers alike seem to appreciate what Billeo is providing. Raj Lalwani, the company's founder and CEO, said the growth rate among its consumer users has been 100% each month since the service was introduced. The company now has approximately 4,300 merchants in its directory.

Consumers get the convenience of being able to use different payment methods, not having to remember different merchant login information, and being able to pay bills even on the due date to avoid late charges. Billeo allows them to pay bills with credit or debit cards, or with electronic checks through the ACH, which Lalwani said all merchants in Billeo's directory participate in.

Merchants maintain their customer touch points, because the consumers go to their specific Web sites to make payments. Billeo works with reseller partners, including ISOs/MLSs, to develop merchant contacts to add to its growing directory.