Recent years have seen unprecedented growth in the e-commerce space, with an increasing number of food retailers using the Internet to boost sales. A critical question related to this, which has not been systematically analyzed to this time, is: Which types of payment do these companies accept? The derivative of this is: What types do consumers prefer?
 
We studied these patterns to determine if there is a correlation between payment types accepted, revenue and products sold. By presenting this data we hope to guide retailers in choosing what types of payments to accept in order to increase sales and gain a competitive advantage.
 
A Simple approach is to accept all forms of payment. Unfortunately, this is no longer working. The number of payment types continues to expand dramatically, causing increased fragmentation of payment utilization. Each payment type a merchant accepts carries its own cost, and each type has substantial management costs associated with it as well. The vast majority of merchants we have worked with do not understand how to manage or interpret the costs and consequences of accepting various forms of payment. Therefore, in the current environment of significantly increasing costs, regulations, penalties and risks, it is critical to make judicious choices.
 
The e-commerce space presents multiple specific problems from the payment perspective. For example, basic consumer demographics differ vastly between Internet users and non-users. This is the so-called technology divide, which continues to narrow based upon the reduction in both the cost of using the Internet and the difficulty of doing so. Associated with this is the explosion of payment types and formats that consumers are using to make e-commerce purchases.
 
In a July article on alternative payment modalities that appeared in Transaction Trends, this author noted that multiple additional payment formats are gaining traction as alternatives to traditional credit card acceptance. These include biometrics, driver’s license-driven identification, ACH, micro-payments, global formats and others. Additional formats, including gift cards, are growing and dividing the payment environment.
 
With the above in mind, we present survey data that attempts to focus the grocery industry on which payment formats are being used and by whom. Our analysis was specific to 281 companies. In an attempt to give broad guidance, we grouped the companies into 11 functional categories within the grocery environment. We acknowledge that these groupings are subjective and could be subject to challenge.
 
The author defined the market categories to be researched, in this case the Internet grocery marketplace. This information was given to Paul Nichols, PhD, the statistician who conducted the research.  Identified companies are U.S.-based Internet food marketers that participate in e-commerce and that reported company information, including revenues, to Hoover's, Inc. This universe of 281 companies was divided into 11 subgroups based on common predominant characteristics of the merchandise they sell.  The subgroups are listed in Figure 1.  Each subgroup was then divided into three revenue groups, with each company placed in the appropriate bracket, as shown in Figure 2.  Each company was then analyzed by T3 Reports licensed to ProjectBlackBook.com using a proprietary method to determine the presence of affiliates directing traffic to the grocer's various domains.  When domains were associated with a merchant, it was probed as to directional originating links.

Within each category we counted the number of companies that accepted one of six payment types - MasterCard, Visa, American Express, Discover, PayPal and ACH - and, as an indirect measure of marketing refinement, asked whether they had an affiliate program.
Figure 3 shows levels of acceptance for each payment type.  We next asked if there were differences in these patters either by category or revenue grouping.

There does not appear to be a significant difference by revenue bracket.  The one exception is the greater number of affiliate programs among companies with revenues over $10 million.  We found, as shown in Figure 4, that the different categories of retailers have different patterns of payment acceptance.

The smallest number of merchant categories accept ACH.  It is highest among those how serve a high-end market, such as gourmet grocers and marketers of spices and ethnic specialty foods.

We observed that there was no correlation between the increased or decreased acceptance of American Express and Discover cards in the same category.  Using the reference point of group acceptance of 81% for American Express and 44% for Discover, we found that in three of the 11 categories there was an increased acceptance of both.  In three others there was an increase in acceptance of American Express and an increase in acceptance of Discover; in two categories there was a decrease in the acceptance of both.

The strongest association between the acceptance of PayPal and either American Express of Discover was that when there was an increase or decrease in the acceptance of Discover by a specific merchant category, there was a similar movement in the acceptance of PayPal.  This observation was noted in six of the 11 categories.  In four categories, when there was a decrease in acceptance of American Express, there was an increase in acceptance of PayPal.  The reason for this is unclear.

The gourmet grocer category, which had the second-lowest acceptance of MasterCard and Visa, had the highest acceptance of both alternative forms of payment, ACH and PayPal.  Ethnic food merchants, who had a similar acceptance patter to gourmet grocers in terms of MasterCard and Visa, also had high acceptance rates of ACH and PayPal.  This might suggest that high-end specialty stores may be capable of more effectively matching payment types with consumer preferences.

With certain merchant categories the total number of companies evaluated was not great enough to draw statistically valid conclusions.  However, we feel that the initial information gives food for thought.  A detail analysis based on revenue, average ticket, geographic location and other sale formats, such as brick and mortar, is needed.  All must be factored into the archetype to find the best answer for the individual merchant.  Given the variability in cost between payment types, which no approaches 90%, and the various risk and compliance issues of each format, it is time to undertake a scientific approach to payment.

Business as usual is no longer practical or reasonable. Merchants are faced with compound pressures and cost related to the assortment of payment types.  Payment alternatives are growing at a dazzling rate.  Competitive advantage in the future will proceed both from awareness of the competitor's offerings and from understanding customer desires.