How Alternative Payments Have Evolved

 I recently read the post about Ad Funded Payments by Rik Coeckelbergs mentioning a Trialpay whitepaper on Increasing Sales With Ad-Funded Payments.

I thought the paper was a good read. After talking with a few folks at Trialpay, including Chris Heggem, it seems they are gaining lots of traction and doing everything right. BUT……the paper and discussions got me thinking about the history of alternative payments.

Alternative payments on the web have significantly changed over the last 5-10 years as the internet and mobile commerce evolved. Wikipedia defines alternative payments  as “payment methods that are used as an alternative to credit card payments” It further describes the types of alternative payments as “the most common alternative payment methods are debit cards, charge cards, prepaid cards, direct debit, bank transfers, phone and mobile payments, checks, money orders and cash payments.”

What is amazing to me is that several of these methods of payment are what the original alternative payments were trying to displace.

As I thought more about the topic, I searched to see what else Wikipedia had on the early internet-based alternative payment players. Before PayPal, there was DigiCash, eCash (which was DigiCash reincarnated), Beenz, Flooz, etc. Wikipedia has a full list of payment service providers.  But really doesn’t break them out as alternative payment providers.

So when I look at the early attempts (including PayPal) at alternative payments on the web, almost all were trying to create a new form of online currency offering anonymity to the transaction.  The attempt was made through encryption, keys, and networks of connected institutions to settle the transaction.  The problem was that the business model wasn’t strong enough for such a system and it was riddled with organized fraud. The majority of all original service providers are gone, sold, resold, or morphed into something completely different so they could survive in some capacity.

Here is an oversimplified example is PayPal’s evolution. The initial goal was to offer anonymous payment options. They gained popularity offering $5.00 for each new member referral. They realized the model was poor and filled with fraud on so many levels. They were burning through cash with the best of the dot coms. Success started after focusing on their fraud prevention efforts and some good luck with interest from the growing eBay auction community. It was when they started accepting credit cards where they really grew.  What they really spawned was the payment service provider (PSP) market. 

So that brings me back to what is now the 2010 definition of alternative payments…anything other than a credit card, including incentive based marketing payment solutions. As I have said for years, people will forfeit privacy for convenience and rewards every day.  

What are your thoughts?