Post Transaction Marketing: Is It Worth The Risk For E-commerce Merchants?

Post Transaction Marketing

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In the first half of 2009, e-commerce revenue amounted to approximately $64 billion of all retail sales in the U.S., according the U.S. Census Bureau.  While e-commerce sales dropped from the same period in 2008, the percentage of total retail sales increased slightly from 3.3 to 3.5 percent.  What this shows is that more consumers are finding confidence in online shopping.  This is good news for online merchants.  However, the rapid growth of e-commerce has created tons of new sales opportunities, including aggressive direct marketing companies who have found ways to target online shoppers.

By forging relationships with well-known companies who have a substantial online presence and customer base, direct marketing companies are selling club memberships, which incur monthly fees, to online shoppers at checkout. Unfortunately, not all of the online shoppers are aware that they purchase these memberships.  The memberships, masked by offers such as cash back rewards, future purchase discounts or free magazine subscriptions, are frequently tied to trusted web sites.  Shoppers only discovered they were enrolled in the clubs after finding unauthorized charges, ranging from $9 to $20, on their credit card statements – sometimes after they had been charged these fees for a few months.

“The memberships, masked by offers such as cash back rewards, future purchase discounts or free magazine subscriptions, are frequently tied to trusted web sites. “

After discovering and investigating these unauthorized charges, most online shoppers found the club enrollment process deceptive and misleading.  What is angering cardholders most is that their credit card information was passed on to third parties without their consent.  Unfortunately, the consent was hidden in the small print (they likely did not read) when they accepted the online offer.

High volumes of consumer complaints to the Better Business Bureau, state attorney generals and consumer advocate groups about these controversial sales tactics prompted an investigation by the U.S. Senate Committee on Commerce, Science, and Transportation, chaired by Senator John D. (Jay) Rockefeller (D-WV).  The investigation, launched in May, 2009, researched three Connecticut-based direct marketing companies – Webloyalty, Affinion and Vertrue – their online retail partners and the web sites which sell club memberships to online shoppers.  Their findings thus far were published on November 16, 2009.

Some of their findings discovered:

• These business practices have created over $1.4 billion in revenue from online consumers
• More than 450 e-commerce sites have partnered with Webloyalty, Affinion and Vertrue
• E-commerce companies who partner with these direct marketers also share in revenues from these memberships
• 88 e-commerce companies have earned more than $1 million of the $1.4 billion in revenue
• Since 1999, online shoppers have been enrolled in more than 35 million memberships
• A majority of consumers contact the call centers for the 3 leading direct marketing companies to question the unauthorized charge on their cards and subsequently request cancellations

These offers are called “post-transaction” because they appear after online shoppers enter their billing information but before a transaction is confirmed.  Misleading “yes” and “no” buttons cause consumers to think they are completing the original transaction, but instead they are entering into a separate financial purchase.  If the shopper accepts the offer, the billing information is passed on to the third party who manages the monthly memberships.  These offers have been found on well-known – and trusted – sites such as Expedia, Orbitz, Priceline, Hotels.com, Fandango, Buy.com, and Classmates.com (who reported more than $70 million in revenue from the memberships).

In the first half of 2009, e-commerce revenue amounted to approximately $64 billion of all retail sales in the U.S., according the U.S. Census Bureau

In an interview with MSNBC, Webloyalty CEO Rick Fernandez stated that Webloyalty made sure the terms and conditions were clear to online shoppers in the post transaction process.  However, online consumers who have been enrolled in the club memberships without their knowledge don’t agree.  These marketing and sales practices are causing negative effects on e-commerce and tarnishing consumer loyalty in the web sites and companies who employ these marketing practices.  Complaints from online shoppers, and now the release of the Senate report, are forcing e-commerce companies to revise these marketing tactics towards a more conservative approach – or to end the partnerships with these firms all together.  Affinion claims that the activities in the Senate report describe Webloyalty’s practices and claims that Affinion has changed their business practice but did not describe what changes were made.  Vertrue, also known as Adaptive Marketing LLC, stated that they are “strengthening” its practices to provide consumers with “clear, conspicuous and repeated disclosure” of their terms and conditions.

Online merchants should consider the effects of similar marketing and sales tactics before deploying them.  Online shoppers prefer to shop with merchants they can trust – a strong influence contributing to online shopping behavior and consumer loyalty.

MSIQ is dedicated to saving merchants money on what they already have to pay. We believe that educating our merchants about the industry is the best way to earn and keep your business.

Types of Credit Cards

What are some of the typical cards you can accept?

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There are several different kinds of credit cards issued by Visa and MasterCard. There are differences between them may affect the rates charged for those cards and how a merchant is responsible for processing them.

Consumer Card

A consumer credit card is a plain old credit card carried by an average person. It is not tied to a checking account, offer any rewards, or associated with any business. It is not special in any way. These cards are becoming less and less popular as check cards and rewards cards gain in popularity.

Check Cards

A check card is very similar to PIN-based debit cards. Unlike a typical credit card where you wait until you receive your next bill to make payment, and maybe even make a partial payment, the funds for check card transactions are immediately withdrawn from your checking account.

Unlike PIN-based debit cards, however, you do not have to key a PIN number to complete the transaction. You simply sign your name as if you had used a credit card. Also, unlike PIN-based debit, no special equipment is required to accept check cards. The same equipment used to accept credit cards can also accept check cards.

Rewards Cards

A rewards card offers its cardholder special bonuses for using that card to make purchases. The bonuses will vary by card issuing bank. Typical rewards include airline miles and vacation packages.

All rewards cards are placed into a special Interchange table and typically cost more to accept then a traditional consumer credit card. They typically fall into a mid-qualified rate for retail businesses. Mobile, MOTO, and Internet businesses typically pay their qualified rate for these cards.

Business/Corporate Cards

Business cards, also called corporate cards, are carried by business owners. These are typically used to make purchases for the cardholder’s business. They are popular amongst businesses as they offer extra features not traditionally found in consumer credit cards. The more detailed statements are their primary benefit.

Business cards are placed into a special Interchange table and typically cost more to accept then a traditional consumer credit card. They typically fall into a mid-qualified rate for retail businesses. Mobile, MOTO, and Internet businesses typically pay their qualified rate for these cards.

Purchasing Cards

Purchasing cards are virtually identical to business cards with one exception: they can only be used in predetermined businesses. All transactions outside of the predetermined businesses will be declined automatically.

The predetermined businesses are determined by SIC code. If a corporation has allowed a purchasing card to make purchases from a merchant listed in that SIC code the transaction will proceed normally. The company that the purchasing card has been issued to has the ability to determine what SIC codes a card may be used with. If a merchant has a customer that cannot make a purchase due to the SIC code restriction the customer will need to contact the card issuing bank to have the merchants SIC code added to their acceptable SIC code list.

Purchasing cards behave like business cards in terms of rates and fees as well as required fields.

MSIQ is dedicated to saving merchants money on what they already have to pay. We believe that educating our merchants about the industry is the best way to earn and keep your business.