Credit cards have been an obstacle for online commerce. Around 20 percent of American adult consumers don't have a credit card, according to Avivah Litan, an online payments analyst with Gartner. Meanwhile, most purchases in the United States are made without a credit card, according to James Van Dyke, an electronic payments analyst with Javelin Strategy and Research. Additionally, many consumers have been reluctant to give out their credit cards online, for fear of having the number compromised or their identity stolen. A number of start-up companies have tried to fill this gap by introducing alternative payment mechanisms online. Last year, Amazon, for instance, introduced a purchase-order system targeted at big businesses and institutions, such as universities. Meanwhile, the 7-Eleven chain of convenience stores is testing shopping kiosks that allow customers to pay for online purchases with cash. And PayPal has proven to be one of the most popular alternative payment services; its service, which lets buyers pay for transactions out of their bank accounts or PayPal account balances, is used in some eBay transactions. But many other payment models such as Flooz and Beenz have failed. Ninety percent of online purchases are still made using a credit card, according to Van Dyke. Tricky proposition?
I4's "bill me later" feature could prove costly to the company, Van Dyke said. The company is liable for transactions where a consumer receives goods from a merchant but doesn't pay for them. Additionally, I4 will have to pay the expense of authenticating consumers. That may prove the most difficult part, because some of the target audience for "bill me later" will be consumers who don't carry any credit cards because of bad credit, Van Dyke said. "There's an opportunity here, Van Dyke said. "Someone's eventually going to get this business. It's just going be tough for whoever does get it to make it work." Although I4 is allowing customers without credit cards to purchase online, it's approving less than half of the "bill me later" requests from such consumers, Lavelle said. Meanwhile, the company is working closely with merchants and using their customer data to help determine credit risks, he said. "Most of the merchants we work with don't have huge fraud problems with Visa or MasterCard," he said. But those merchants are upset because they still have to pay high credit card transaction fees, he said. But privacy issues could be another problem for I4, said Gartner's Litan. Consumers are extremely reluctant to give out personal data online, especially social security numbers, Litan said. "People are really nervous about it," Litan said. "They have a big uphill battle," even if they are only asking for dates of birth and the last four digits of Social Security numbers, she said. "That's probably almost as bad if not as bad as giving your credit card out. For some people it's even worse."
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