Web shopping: new perks, risks

Michelle Fox was shopping online last week when she saw an offer of 20 percent ”cash back” from PayPal, eBay Inc.’s online payment service. Though she normally uses a credit card to pay, the Castro Valley, Calif., mother of three signed right up. She was glad to get something back, she said, since she was ”spending quite a bit.”

This holiday season, payment services such as PayPal, Bill Me Later Inc. and Google Inc.’s Checkout are offering a host of marketing promotions, many of them for the first time. Web shoppers can use these payment services, which have mostly sprung up in the past few years, to pay merchants all over cyberspace without having to type in credit-card or personal information each time they buy something.

For consumers, the offers represent an increasingly significant variable to consider when trying to play the holiday promotions. Most of the latest promotions involve free shipping, discounts or credits. PayPal and Bill Me Later, for instance, have for the first time teamed up with Web merchants to subsidize their special promotions, such as buyer discounts or free shipping. Consumers who shop at Barnes & Noble Inc.’s Web site, Baby Universe Inc.’s eToys site, or Web jeweler Blue Nile Inc., among others, can receive 20 percent ”cash back” – that is, a credit of as much as $50 to their PayPal accounts – if they use PayPal during the period of the offer.

Meanwhile, Bill Me Later is for the first time subsidizing shipping costs and offering daily specials from its merchant partners this year. Shoppers at eToys Direct Inc. and KB Toys Inc.’s Web sites can receive as much as $20 in free shipping and deferred billing of up to 90 days if they pay with Bill Me Later. And Google Checkout also has some promotions, such as free shipping on purchases of $50 or more with certain merchants.

The payment services are rolling out these offers in hopes of luring consumers who might become regular users. The companies make their money off merchant fees, though Google also sells ads. By signing up more users, the companies hope to generate more transactions and thus more revenue. Most of the $150 billion in online retail volume in the U.S. is still paid using traditional credit and debit cards, according to research firm Javelin Strategy and Research in Pleasanton, Calif. Alternative payment services had only a 14 percent share in 2007, though that is forecast to grow to 30 percent of online retail volume in 2012, says Javelin.

Google Checkout helped kick off the payment-service promotions last year. After launching Checkout in mid-2006, Google introduced a variety of discount offers last holiday season. The offers were unusual because payment services had generally shied away from costly marketing programs, and Google funded the discounts itself. In response, PayPal last year began offering $20 off any $50 purchase made with its service.

Now the payment services are ramping up their consumer incentives. PayPal’s 20 percent cash-back offer this year extends to 27 online merchants, including Sharper Image Corp., Dell Inc. and Toys ”R” Us Inc. The offers, which vary in duration, started last week and will end by Dec. 10. Consumers who use PayPal between Nov. 19 and Dec. 21 will also be entered into a sweepstakes, another new incentive.

Bill Me Later’s free-shipping program this year encompasses more than 80 merchants, including Wal-Mart Stores Inc., Brookstone Inc., and Cabela’s Inc. Bill Me Later, based in Timonium, Md., is subsidizing part or all of the shipping costs in those programs. In addition, the payment service is promoting exclusive offers called ”daily steals” from merchants in its network such as Lamps Plus Inc. and outdoor-gear merchant Orvis Co. Lamps Plus was recently featured on Bill Me Later with a daily special of $5 off a purchase of $50 or more.

Deborah Payne-Kelley is one consumer who plans to use Bill Me Later’s savings. The Oakland, Calif., special-education teacher, who often uses the payment service during the holidays because she can pay for her purchases over as long as six months, says her $500 holiday budget is tighter now than in years past. As a result, she hopes to save as much as 50 percent with Bill Me Later’s discounts this holiday season. ”I’m able to get a discount that I’m unable to get with a credit card,” she says.

Meanwhile, Google Checkout a week ago announced that its users can earn two frequent-flier miles on participating airlines, including UAL Corp.’s United Airlines and Continental Airlines, for every dollar they spend using the service through Dec. 31. Google Checkout is also offering free shipping on purchases of $50 or more at stores such as Petco Animal Supplies Inc. and CSN Stores Inc.’s Luggage.com until Dec. 17. Plus Google is offering its Checkout users discounts of $5 to $50 at sites such as Drugstore.com Inc.

The payment services require a little work from customers to qualify for the special offers. At Bill Me Later, new users must register their personal information with the service before shopping. That requires supplying their name, email address, street address, ZIP code, the last four digits of their Social Security number, their home phone number, and their birthday. After registering, users must log into Bill Me Later’s site to start shopping. When they complete their purchases, they must choose Bill Me Later when they check out.

PayPal users and Google Checkout users similarly have to click through several Web pages and enter personal information before qualifying for the special offers.

One drawback: Consumers may have to wait for the credit from their purchases to hit their accounts. For instance, the PayPal cash-back offer will be posted as a credit to users’ accounts no later than Jan. 31, 2008, according to the terms of the offer. PayPal says it needs to wait for retailers to post buyers’ payments and settle shipment before it can process the credit to its users.

Merchants say they like these payment services because they attract new, Web-savvy customers who might not have shopped at their sites before. Such consumers are more likely to make purchases than other people, the merchants say. ”People who start with Google Checkout convert through (to a sale) at a higher rate,” says Troy Brown, senior director of shoemaker Timberland Co.’s Web site. ”In the end, we don’t care what consumers use” to pay, Mr. Brown adds. ”It’s a service that consumers have come to expect so we provide it.”

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