Amazon Shoppers Get 'Buy Now, Pay Later' OptionAmazon Shoppers Get 'Buy Now, Pay Later' Option

Online retailers, just like their consumer counterparts, don't want to pay credit-card fees. That's one reason why Amazon.com Inc. decided this month to give shoppers the online equivalent of a store credit card and the always-popular opportunity to buy now and pay later.

The Amazon Credit Account, a partnership with Citi Commerce Solutions, a division of Citibank Cards, gives people without a bank card or credit card the chance to shop at the site. More important, the new payment option will help the Seattle retailer, still struggling to reach profitability, circumvent hefty credit-card processing fees. Amazon and other online sites pay as much as 2.25% per transaction, compared with the 1% to 1.5% that conventional retailers pay, says Gwenn Bezard, a Celent Communications analyst.

"It's a huge fee," Bezard says. "A goal of Amazon is to receive payment without relying on credit cards."

With Amazon Credit Account, the retailer will bill shoppers once a month and settle payments electronically via direct debit from customers' bank accounts. Shoppers can pay the entire bill each month or carry a balance. Purchases of gift certificates, Circuit City merchandise, cell phones and service plans, and items from auctions, zShops, and the Amazon Marketplace are excluded from Amazon Credit Account.

To entice customers to sign up with the new credit account, Amazon is offering a three-month grace period and interest-free holiday shopping on orders over $200 placed through Jan. 31, 2002.

Meanwhile, online payments company PayPal Inc. unveiled a feature late last month that lets its 11 million users make purchases anywhere on the Web where MasterCard is accepted. Here's how it works: Using a ''virtual'' MasterCard debit card funded by money held in the customer's PayPal account, the customer can make purchases at sites that don't accept standard PayPal payments, such as Amazon.

The MasterCard option could boost the number of transactions PayPal processes--a figure that continues to increase despite the economic slowdown. Revenue for the privately held, Palo Alto, Calif., company increased 50% last quarter, due mostly to eBay--70% of all PayPal payments are auction-related.

"The success of PayPal relies on the success of eBay," Bezard says. About one-fifth of PayPal users are small businesses who pay 2.2% to 2.9% per transaction to accept payment.