No Check, Please
John Gartner | Revenue Today, December 2007
Whether it is for spring to begin, for Godot or for a commission check, no one likes waiting.
The 30 to 90 days that affiliates – especially those outside the U.S. – must wait for commission checks to arrive can seem like a lifetime, and waiting in line at the bank to cash it is so 20th century.
While merchants might not be as anxious to see the money leave their accounts, replacing lost checks and answering calls about payments wastes time and money, and paper leaves an expensive trail. For recipients, being paid by check requires a trip to the bank and then waiting (there's that word again) 24 hours or more for the check to clear.
Paper checks are also permanent – a discrepancy in the amount must be resolved by another check, or possibly returning the original draft. When merchants are issuing dozens or hundreds of checks per month, the cost of resolving disputed checks can pile up in a hurry. "Receiving a check is one of the more inconvenient payment methods," says Ron Hynes, vice president of product development of Prepaid for the Americas at MasterCard Worldwide.
Enter the electronic payment. No sitting by the window looking for a delivery person, currency exchange fees or checks that disappear into the ether. The other advantages of electronic payments – including faster processing, greater accuracy and lower transaction fees – all but guarantee that the paper check will soon become an endangered species in the online marketing space.
For the issuing party, there's the printing (where errors occasionally happen), verifying and signing of the drafts and the stuffing of envelopes – all time-consuming tasks. Direct deposit to a recipient's bank account is the most popular form of electronic payment, and it is increasingly being used for business-to-business transactions. B2B automated clearing house (ACH) payments grew by 10.9 percent between 2005 and 2006 to 2.3 billion transactions, according the Electronic Payments Association.
Alternative electronic payments that do not require a bank account for deposits are also on the rise, with services including PayPal and PaidByCash becoming commonly accepted methods of payment. In all, electronic payments represent more than 10 percent of online commerce transactions, and similar technology is being applied to B2B financial transactions. Adding to their attractiveness is their "green" quality, as eliminating paper checks saves trees, while fewer trips to the bank means less time behind the wheel.
Electronic payments have grown more rapidly in the consumer arena, but B2B is catching up, according to Edward Kountz, a senior analyst at JupiterResearch. "There's more pent-up demand on the B2B side" of electronic payments, Kountz says. The lack of a unified payment standard has held back adoption, but more businesses are moving to paying electronically for the same reasons as companies accepting electronic payments – "to eliminate friction," he says.
Catching On With Networks
Performance networks are moving to electronic payments to eliminate the costs and administrative hassles of paying with paper. DoubleClick Performics began paying affiliates electronically through direct deposit in 2001, according to Ed Fleming, the company's finance manager. DoubleClick Performics developed software that is integrated with its reporting and accounting system to streamline generating direct deposit payments. "It costs us about half the price of a stamp to process" a direct deposit payment, he says.
Currently DoubleClick Performics' payments are split evenly between checks and electronic deposits, Fleming says. Affiliates that generate the most revenue are the most likely to participate in direct deposit. Fleming estimates that 90 percent of commission dollars are sent out electronically.
DoubleClick Performics regularly contacts affiliates to recruit more to accept being paid electronically, but some still prefer to be paid by check. Affiliates may decline to participate in direct deposit because they fear identity theft. "They don't want to give out their banking information," Fleming says. DoubleClick Performics has had internal discussions about offering alternative electronic payment options, but there has been "no outcry or huge demand" from affiliates, according to Fleming.
Commission Junction currently offers direct deposit and is evaluating offering PayPal as an electronic payment option for affiliates, according to Dave Osman, the company's vice president of Client Services. "There doesn't seem to be a clear leader" in B2B electronic payments, he says. While electronic payments would save the company, "Our desire to eliminate [checks] is based on customer needs, not cost," Osman says.
LinkShare recently announced a new payment plan for publishers, which pays them weekly from the first dollar earned. By moving to a weekly payment schedule, LinkShare reduces publishers' wait time to receive commissions and doubles the number of paydays. The new plan intends to help publishers improve their cash flow so they can invest resources in their growing businesses. LinkShare officials declined to comment for this article about its payment options.
PayPal, the eBay company that has popularized online funds transfers in the consumer realm, has developed software called MassPay for automating the processing of electronic B2B payments. MassPay can be integrated into payroll and reporting programs through a free application programming interface (API), according to Michael Oldenburg, Associate Manager of Corporate Communications for PayPal. T here are now 18 affiliate software applications that incorporate MassPay, including Affiliate Guerilla, AffiliateShop and MyAffiliateProgram.
Transaction fees for MassPay are up to 2 percent of the value of the transaction to a maximum of $1 per transaction and are paid by the issuing party, according to Oldenburg. Money can be transferred without cost from the online account to a PayPal debit card for off-line spending, he says.
Alternative Payment Options
As an alternative to direct deposit, networks are beginning to roll out debit cards that are linked to online accounts and accept electronic transfers. These cards, also known as "prepaid," "stored value," "reloadable," or "payroll" cards, do not require affiliates to provide bank account information – only a valid address is needed to initiate an account.
Prepaid cards have the same efficiencies as direct deposit without requiring a complex sign-up process, MasterCard's Hynes says. Prepaid cards enable companies to eliminate commission checks altogether when used in combination with direct deposit, says Hynes, which works with banks and payment processing companies to distribute MasterCard-branded cards.
Payment companies Payoneer and Ecount as well as network Axill offer prepaid card services that have no start-up fees to the network, and the cards are free for the affiliates.
These cards offer the security of gift cards (if you lose the card there's no access to a bank account) with the added benefit of third parties, such as networks being able to deposit funds electronically. Payoneer, of New York, offers MasterCard debit cards that can be used for shopping or to get cash through an ATM, according to Yuval Tal, CEO of Payoneer.
Although the cards are free to affiliates, there are fees of up to $2 for withdrawing funds through an ATM. Affiliates who are part-time workers and use commissions as discretionary income can find it advantageous to separate their earnings from their primary bank accounts.
Just as with direct deposit, the funds are available the same day of the funds transfers, Tal says. However, if a balance is kept on the card at the end of the month, Payoneer charges a fee. While paying a fee for someone to hold onto your deposit might seem counterintuitive, Tal says that the cost of tracking and administering held-over balances is more than any interest the company could make.
Electronic Payment Options
Merchants looking to accelerate their payment processing while eliminating the cost of paper and accounting hassles have several options for going electronic. Transaction fees vary to a maximum of a few dollars per transaction, but they are all superior to the cost of paper checks.
It's easy, universally understood and safe. However, it requires validating an affiliate's bank account number. Finding international banks to participate can be costly and time-consuming.
Many affiliates already have existing accounts so they can be very comfortable in getting on board. Little to no information is required to recruit affiliates, and PayPal can pay out in 17 currencies.
Prepaid Debit Cards
Ecount and Payoneer, along with many banks backed by Visa or Mastercard, offer cards linked to online accounts. With a minimal of software integration, publishers can issue payments from within their affiliate software. Affiliates can get cash through ATMs using a card with the network's branding.
Affiliates who set up a Payoneer account can also direct funds from any network, even if Payoneer does not have a relationship with the network, according to Tal. Each Payoneer account includes a routing number that can be used for direct deposit, similar to a brick-and-mortar bank. Affiliates can also mail endorsed checks from Google, and Payoneer will deposit the funds into their debit account, Tal says.
Debit cards can be set up so that the networks pay most or all of the transaction fees. Tal says the per-transaction fee depends on the volume of funds that the network processes. Networks that use Payoneer include AmieStreet, ROI Rocket and JoeBucks. Gary McNelly, CEO of JoeBucks, a health and beauty affiliate network, chose Payoneer because the transaction fees are less expensive than implementing PayPal. Integrating Payoneer into his reporting system required just one hour of technical staff time, he says.
Ecount of Conshohocken, Pa., offers electronic payment systems that can be used by networks to compensate affiliates and for affiliates to offer rebates to consumers with minimal administrative costs. Jay Levin, senior vice president of consumer payments at Ecount, says companies can build loyalty by offering MasterCard debit cards with their branding. "Online marketers can be tough to get off-line branding," Levin says. Offering a branded card "will give them that viral feel." As an added benefit, affiliates that work with several networks are more likely to remember and positively view a network if the logo is on a debit card that they use for discretionary income.
Ecount requires a database or XML file from the network that can be submitted via FTP or email to generate electronic payments. The company creates a custom-branded website that cardholders access to check their account balances and payments.
Ecount's debit cards can also be used as periodic rebates for signing up for a service, Levin says. Wireless phone carriers and cable companies have issued debit cards to new customers as an incentive for signing up. Part of the cost of a new phone or cable box is returned to the customer via monthly payments to a branded card, which builds consumer loyalty at a lower cost than issuing paper checks, according to Levin.
Axill, an international network located in Piscataway, N.J., has been aggressive in pursuing the expediency of electronic affiliate payouts. The company, which is a subsidiary of online marketer Northgate Technologies of India, offers same-day payouts to affiliates who sign up for the company's Visa debit cards. However, same-day payouts are limited to affiliates that accrue a minimum of $25 in commissions. As with other debit cards, funds can be withdrawn at ATMs from the Axill-branded cards.
International Payment Options
Paying affiliates outside of the U.S. is often costly in transaction or currency exchange fees, and affiliates who are paid by check do not have immediate access to funds. Wire transfers can cost up to $50 each, and checks from U.S. banks can take up to a month to clear out of the country – if affiliates can find a local bank willing to cash them. Recipients living outside the U.S. may also be required to pay additional fees to exchange U.S. dollars for their local currency.
DoubleClick Performics' Fleming says making payments to foreign banks "is by far the biggest issue" in using direct deposit. The fees (associated with foreign bank transfers) "are a drawback for using electronic payments" outside of the United States, he says.
PayPal's MassPay enables publishers to issue payments in 17 currencies to 190 countries, with transaction fees of 30 cents each plus up to 2.9 percent of the balance, according to Oldenburg. A single batch of up to 250 payments can handle multiple currencies.
Since approximately 98 percent of his affiliates are outside of the U.S., JoeBucks' McNelly says minimizing the cost and complexity of international payments was a must. Most of his new affiliates in India, Russia and Asia choose to be paid via a Payoneer account, and they like being notified by email of a funds transfer, he says. "We haven't had many complaints [about using Payoneer], which is unusual, because [affiliates] complain about everything," he says.
Ecount can issue electronic payments to only U.S. and Canadian residents and will add three European markets in 2008.
Mary Kae Marinac, PR Representative for Payoneer, Email: email@example.com, Phone: (978) 685-3136