The company behind eBillme has announced a partnership with Discover Financial Services that furthers the alternative payments provider's strategy of aligning itself with mainstream players.

The partnership, which the companies expect to finalize by midyear, will enable merchants that accept Discover cards to offer ModaSolutions Corp.'s eBillme as a payment option for online shoppers. EBillme allows merchants to receive payments for e-commerce sales through any bank's online bill-payment service; though banks do not need to cooperate with Moda, the company shares revenue with those that help promote its service.

Experts said the arrangement gives eBillme more legitimacy and helps Discover extend the reach of its network beyond cards.

"The deal with Discover is definitely a sign that eBillme is gaining credibility within the financial services and payment community," said Gwenn Bezard, a co-founder and the research director of Aite Group LLC in Boston.

EBillme serves consumers who either don't have, or don't want to use, credit and debit cards to pay online. Consumers receive an invoice by e-mail, and merchants ship their purchases after the payment is sent.

In the agreement with Discover, eBillme transactions flow over CardinalCommerce Corp.'s Centinel Universal Merchant platform, which Discover uses for alternative, noncard payments. Both companies will share revenue from the transactions. Under this arrangement, Discover handles back-end settlement, reconciliation and reporting for merchants that are already connected to its network.

"As commerce changes, we want to have the appropriate products for our customers, whether that is online, offline, or a niche activity," said Farhan Ahmad, general manager for prepaid and director of emerging payments at Discover. "Merchants want to offer as many ways to accept payment as consumers want to use."

Andy Schmidt, research director for global payments at TowerGroup in Needham, Mass., said, "This is certainly a benefit to Discover's merchants because it gives them flexibility," since not all merchants want to accept cards. The partnership also lets Discover "integrate alternative payments into its network rather than being cannibalized by someone else," he said.

Discover does not disclose how many merchants participate in its network, but they number in the millions, a company spokeswoman said.

In recent years, Moda has sought out marketing arrangements with banks. SunTrust Banks Inc. of Atlanta has offered eBillme to its customers as a payment alternative since 2009.

Marwan Forzley, Moda's president and chief executive, said these arrangements benefit banks by keeping their customers using their online banking services, and will ultimately be more lucrative than processing debit transactions.

"The revenue sharing is significant and it is potentially more money than the bank will make on debit cards post-Durbin," Forzley said. Revenue sharing typically starts at 10 basis points and increases to 1.5% of sales, he said.

Banks that actively promote eBillme, such as through e-mails to customers, get a bigger share of the revenue from eBillme purchases.

The Discover partnership "is an example of a network opening up to alternative payments and new ways to leverage their infrastructure to support new types of transactions," Forzley said.

He said the partnership will also give eBillme access to more merchants.

Still, the partnership inevitably raises questions about Moda's long-term plans for eBillme, and whether financial services companies will ultimately view eBillme as a competitor, much like they have long viewed the PayPal Inc. unit of eBay Inc.

"The biggest concern for banks around [alternative payments] is cannibalization of cards revenue," said Zilvinas Bareisis, a senior analyst in Celent's banking group. Many banks, he said, are exploring their own electronic payments services, called online banking e-payments, which would enable consumers to pay for goods and services through the online banking channel.

"Banks still keep control of the payment and participate in the transaction flow, and it is an alternative revenue source," Bareisis said.

Discover said it is not worried about competition.

"There could be some competitive factors here, but I think competition is not a bad thing," Ahmad said.

In a similar arrangement, he said, Discover has worked for more than a year with PayPal to offer its Bill Me Later service.

Bill Me Later issues instant credit to consumers for a single online purchase. Consumers provide their birth date and the last four digits of their Social Security number; PayPal combines this with other information provided during the checkout process to determine whether to approve the applicant.

"Once the transactions run on our network, we also benefit," Ahmad said.