Bill Me Later Inc. was a U.S. instant-credit provider that so shook the online payments landscape that even PayPal Inc. couldn't compete — it bought Bill Me Later in 2008 after its homegrown instant-credit product, Pay Later, failed to gain traction.
EBay's Thursday acquisition of the German company BillSafe, which lets shoppers pay for purchases only after they receive a mailed invoice, demonstrates the San Jose, Calif., company's commitment to the instant-credit model and its conviction that it can sustain the format in other markets.
But observers warn that the payment model used by Bill Me Later and BillSafe requires finely-tuned risk management to guard against fraud or excess delinquencies.
EBay bought a minority stake in BillSafe in October 2010. It now owns all of BillSafe's outstanding shares. The financial terms of the acquisition were not disclosed.
Purchase-on-invoice billing is popular in countries where there is not a strong history of card use, says Zilvinas Bareisis, a senior analyst with Celent. These payment habits lead German citizens to favor online-purchasing methods that are not common in other countries. Another example is paying by cash-on-delivery.
BillSafe's method of e-commerce is also popular in Austria, Switzerland and the Netherlands.
PayPal views BillSafe as another way to meet consumer needs, which should create more business for the merchants that offer purchase-on-invoice billing, says Arnuls Keese, managing director of PayPal's German operations.
In Germany, 20% of payments are billed via invoice, eBay said in a press release. BillSafe has more than 15 million accounts in Germany.
"Consumers here want payment options that reduce their risk, which is why this has become so popular," Keese says.
But if BillSafe's model reduces risk for consumers, it might in turn increase risk to merchants, such as for unpaid invoices.
PayPal could address this issue by limiting BillSafe's availability to frequent users, Bareisis says. "You might need a vetting method for something like this," he says.
PayPal is not as concerned with the threat of delinquencies because merchant acceptance of purchase-on-invoice billing is not widespread.
"It's basically only available from merchants who have strong risk-management," Keese says. "If you don't implement this the right way, you can lose a lot of money."
BillSafe potentially gives PayPal an option to give consumers the ability to use purchase-on-invoice billing on the go via a mobile wallet.
PayPal has no immediate plans to offer a mobile version of the purchase-on-invoice billing option, Keese says.
It does, however, have plans to integrate Bill Me Later into its mobile option to give consumers another payment option at the point of sale. The company could issue customer credit and provide a five-day float for each purchase. The customer can change the funding option for each transaction within that timeframe.
Penny Crosman contributed to this story.
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