), eToys.com, and Continental.com (CAL
) without using plastic.
Bill Me Later, a payment system created by Timonium (Md.)-based I4 Commerce Inc., asks consumers for only two bits of information: their date of birth and the last four digits of their Social Security number. I4's software approves or denies transactions by scouring the information entered on the merchant's Web site and by checking with credit bureaus and other databases -- all within four seconds. If the purchase is approved, the consumer gets an old-fashioned bill via snail mail or e-mail. Payment can then be made by check, electronic fund transfer, or other means.
Some million consumers have already used Bill Me Later. "The truth is that credit cards weren't designed to be used online," says I4's CEO Gary Marino, 49, who helped FirstUSA, now a unit of JPMorgan Chase & Co. (JPM
), vault from the 30th-largest issuer of Visa cards to No. 1 in three years. "The [credit-card] process is clunky and scary for a lot of people."
Marino says I4 could process $1 billion worth of transactions in 2006. That's far below the $6 billion in merchant sales likely to be processed by PayPal, a subsidiary of online auctioneer eBay Inc. (EBAY
), an electronic wallet into which consumers can put money to make online purchases. But I4, with its no-money-down approach, is the only other online-payment plan to gain traction in recent years.NO-RISK OPTION
A key question is how fast I4 can convince harried e-tailing companies to put Bill Me Later at the top of their to-do lists. So far, it's available at only 6% of the sites, says Forrester Research Inc. (FORR
). But some merchants who use it say it's a no-brainer. For starters, I4 charges a fee of 1.5% on transactions, vs. 2% or more for Visa, MasterCard, and other leading credit cards -- a significant savings for low-margin retailers. "We've always been concerned by the fees the credit-card companies charge," says Ken Penny, general manager of Continental.com, the airline's e-commerce site.
More important than cost savings, say these merchants, is the fact that Bill Me Later gives them no-risk access to a new group of customers. Almost a third of Web surfers refuse to use plastic online, says Forrester. Another plus is that I4 accepts all the credit risk, so the merchant isn't on the hook for bad debt. That's possible because Marino persuaded finance giant JPMorgan Chase to underwrite the debt.
Huge obstacles remain. PayPal is aggressively trying to sign up merchants, and search giant Google Inc. (GOOG
) has signaled that it has plans of its own on the payment front.
But Marino says he's on the right track. He expects I4 to achieve profitability in the third quarter of this year, and insiders say an initial public offering is possible in 2007. That is, unless a large credit-card company buys I4 first, either to take control of the technology or squelch it before the concept catches on more broadly. By Peter Burrows