PayPal is giving e-retailers a new payment option designed to increase the number of transactions completed this holiday season.
The company has rolled out a Pay After Delivery program aimed at reducing the instances of consumers abandoning shopping after having second thoughts about how they’re going to pay for it. An annual Forrester Research Inc. study of 67 online retailers included in its “State of Retailing Online” report showed the average shopping cart abandonment rate was 56% last year. PayPal did not provide its own estimate, nor project how much the program would reduce cart abandonment.
The program allows customers to complete a transaction immediately and then have the money taken out of their PayPal accounts two weeks later.
“There is some risk included but we already have a close relationship with the customer, and we already have access to their financial information so that’s why we can authorize the transaction,” a PayPal spokesman says. “Most times they’re already funding their PayPal account with another source. It could come out of their PayPal account or it could come out of their bank account if it’s linked.”
To reduce the amount of risk, PayPal requires customers to have a verified bank account linked to their PayPal account in order to use the program. Consumers normally can fund their PayPal accounts with credit cards or with funds they receive in PayPal payments, including from items they sell on eBay.com. EBay Inc. also owns PayPal Credit, formerly known Bill Me Later, which gives consumers six months to pay for online purchases over $99.
If the shopper who uses the new deferred payment option decides before the 14 days are up that he does not want to complete the purchase, he is covered by PayPal Purchase Protection. The item will ship immediately, the merchant will get paid immediately, and then the consumer has two weeks to decide whether to return what they bought.
The company wouldn’t specify how many users tried out the program before it was made more widely available, only saying that the program was met with largely positive feedback from the unspecified number of millions of users who tried it. PayPal says the program is free for both online merchants and shoppers.
“We have a longstanding relationship with a lot of these customers so it’s our way of being like, ‘we know you’re good with the money,’” the spokesman says.
But while PayPal sees a bright future for the program, one analyst is skeptical.
“It’s certainly not the next big thing,” says Brian Brunk, principal with Boston Retail Partners. “I think if you gave somebody 30-45 days, really the short-term credit, I think it might be a little bit more compelling for people. It doesn’t seem that 14 days is going to be compelling enough to rush to make that purchase decision today versus maybe holding.”
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