Bill Me Later Inc. says its ability to decide quickly whether to grant credit has been a key factor in its growth.
The Timonium, Md., alternative payment provider offers instant credit for people who do not have credit cards or do not want to use them online. Because its service appears on Web sites alongside standard payment options such as credit cards, Bill Me Later says it must deliver comparable transaction speeds for customers who provide the company with very little information.
Tom Keithley, the company's chief credit officer, said that people using credit cards have well-established relationships with their issuers, but Bill Me Later customers provide very little data when they enroll — generally only a birth date and the last four digits of a Social Security number.
A survey Edgar Dunn & Co. published last week found that during last year's holiday season 4.7% of online shoppers used Bill Me Later. The figure is consistent with Mr. Keithley's estimate that Bill Me Later gets about 5% of the transaction volume from its merchant clients.
In addition, Bill Me Later faces a proportionate number of fraud attempts, Mr. Keithley said, and even though fraudsters generally do not design schemes to target his company specifically, it must respond faster than card companies do to fraud trends.
"I wouldn't say that we have more or less fraud [attempts] than any other company," he said. "The difference is how much of it succeeds. … Fraud is extraordinarily low, and we like it that way."
Bill Me Later often is cited in studies as a significant contender in the alternative payment market, though it has far fewer users than card companies or even eBay Inc.'s PayPal Inc.
The Edgar Dunn & Co. study found that even though PayPal had more than five times as many users as Bill Me Later during last year's holiday season, Bill Me Later had almost twice as many as Google Inc.'s Checkout.
Each jump in volume has brought a corresponding jump in fraud attempts, Mr. Keithley said, and his company must rely on technology to keep its fraud rates as low as its approval times.
"We're way more a technology company, even though we come from a bank background," he said.
Bill Me Later uses risk management technology from Zoot Enterprises Inc., but Mr. Keithley said that his company initially had more demands than a typical Zoot bank client, which could take days to decide whether to grant a loan; Bill Me Later has only seconds.
"Through the collective effort of the two teams" at Bill Me Later and Zoot, "we sort of redesigned the system," he said.
Dennis Dixon, Zoot's president, said Bill Me Later's needs are starkly different from those of the banks his company typically serves.
"Their response time is far more critical, because they're online," he said. A bank that responds aggressively to fraud may change its decisioning rules every two to four weeks, but at Bill Me Later, "they have literally gone through phases where they're changing their rules daily."
Mr. Keithley said most of Bill Me Later's fraud detection is handled in-house. "We use Zoot for a limited portion of our transaction process. They basically are involved in retrieving bureau data and assembling this bureau data."
When a fraud trend involves exploiting bureau data, Bill Me Later may involve Zoot to make sure the trend is addressed, he said; Bill Me Later can address other situations on its own, such as attempts to trick geolocation tools that pick apart the digits in a computer's Internet protocol address to determine its location. (A credit application coming from a computer located halfway across the world from the user's billing address may be fraudulent.)
Mr. Keithley said fraudsters can try to thwart these tools by assembling "botnets" — collections of Internet-connected computers that have been infected with malicious software. The botnet can use any infected computer to initiate the transaction, and in many cases the fraudster "attempts to match the IP address location to the billing address of the victim."
Nick Holland, a senior analyst at Aite Group LLC of Boston, said that Bill Me Later's speed in approving new customers puts it ahead of more traditional credit issuers.
"The requirement for that on-the-spot credit checking is absolutely crucial," Mr. Holland said, and some in the card industry are trying to build technology to support instant issuance of cards attached to contactless chips in mobile phones.
If issuers could match Bill Me Later's speed and adapt it for use at a physical point of sale, they would have "the holy grail for a card issuer," he said.
