Payment Processing: Online Payment Systems Come of Age for American Eagle, Orvis

For merchandise sellers not rooted online, alternative payment programs such as PayPal and Bill Me Later once carried the stigma of being designed primarily for consumers with bad debt. But as representatives from two major integrated retailers, American Eagle Outfitters and Orvis, noted during a session at August's eTail Conference in Baltimore, that's no longer the case.

Online alternative payment programs haven't only overcome their stigmas, American Eagle and Orvis both found ways to integrate them into their back-end structures. What's more, they got buy-in from upper management. Here's how:

PayPal Purchase, Store Return
For American Eagle, the process started more than two years ago, according to Julie Katruska, director of finance for the AEO Direct division of American Eagle. "It required partnering with not just our direct team, but also our full American Eagle team, and talking about legacy systems with them," she said. "We figured out how to integrate these alternative payments into our whole back-end structure."

To get to this point, Katruska's unit worked with the store division and the company's IT people on how to implement a PayPal system for American Eagle. "It was getting a buy-in from corporate and IT, and making sure [we answered] any questions they had — such as how customers could make returns in stores," she said. "When we looked at the ROI, alternative payments being very customer-centric spoke to our executive team."

American Eagle also explored the following before implementing PayPal:

• consulted extensively with both the vendor and Forrester Research reports;
• asked customers for payment preferences;
• asked other retailers about the sales lifts they had upon implementing alternative payment programs, and how their implementations went; and
• put together a return on investment report.

One of the biggest challenges for American Eagle was accommodating customer returns in stores. "More people return [online purchases] in stores, because it's a lot easier," Katruska said. "I'd rather they do it in a store, too, because there's always a chance for an upsell in a store."

American Eagle has been able to build a system wherein online purchases made using PayPal are noted in companywide invoices that store cash registers can access. Individual stores can offer customers store credit or cash back for their online PayPal purchases, Katruska said.

"Ideally, we'd like to credit the online payment back," she said. "But whenever customers are adamant on what they'd like, we provide it."

In partnering with PayPal, American Eagle — which targets teenagers on through adults in their early 30s — mostly looks to tap into cash-paying customers. "We look to drive that incremental customer to our site," Katruska said. "So when we tell our executives that we have 40 million PayPal customers, that's a good hook."

Bad Reputation Undeserved
The early days of the internet left Orvis executives believing alternative payment programs were for customers with bad credit, said Brad Wolansky, Orvis's vice president of global e-commerce during his part of the eTail presentation. (Wolansky left Orvis in September to become CEO of The Golf Warehouse.)

"We felt [alternative payment] wasn't our customer base," he said. "But over time, it became apparent that our customer base was the opposite of that. We tried to figure who the incremental customers would be as a result."

For Orvis, which works with Bill Me Later, finding the right partner proved challenging. Along the way, the outdoor sporting goods marketer took into consideration finance, operations, stores, catalogs and the web. Among other payment processes, Google Checkout "didn't go on time," he said. "We had to teach them lots of stuff."

But upon settling on a payment vendor, Orvis enjoyed an increase in average order value. "If our AOV is $150 and Bill Me Later pushes that up to $175, it doesn't cost me much to offer a promo," Wolansky said. "And we share the promo cost with Bill Me Later. So if we're giving customers 90 days of free cash, they take it. It's been a win for them, and they're coming to us."