It's PayPal time: online retailers are discovering that alternative payment services fit their business to a "T."
Author: Entrepreneur

A GROWING NUMBER OF WEB RETAILERS are plunging into the world of alternative online payment options to replace or supplement credit card payments. Alternatives include a "bill me later" button on the site, payment by paper or electronic check, or the use of payment services such as PayPal. Although the use of other payment systems reflects ongoing consumer concern about online credit card fraud, these options are often less expensive and easier to use than setting up a merchant account, which is required to process credit card payments.

Most e-tailers favor PayPal's service. Based in Mountain View, California, it's the world's largest online payment system. Recently acquired by eBay, PayPal lets consumers send money to anyone with an e-mail address through their credit card or checking account. Consumers sign up once for the free service-after that, they use their account number to buy products online securely, conveniently and cost-effectively.

A Merchant's Pal?

Currently, PayPal has more than 20 million registered users and more than 3 million business accounts, and that number is growing by an average of 28,000 accounts per day. While PayPal may be best known as the leading online payment service for online auction sites (buyers use it to make instant payments), it is being used more at regular e-commerce sites. Price is one factor luring online merchants. "There is a big interest in PayPal from small online retailers that can't afford credit card accounts," says Avivah Litan, a vice president at Gartner Inc. In general, PayPal charges just 3.3 percent per transaction. Those who use traditional merchant accounts know they have to pay for costs such as setup fees and transaction fees.