No Check, Please

Whether it is for spring to begin, for Godot or for a commission check, no one likes waiting.

The 30 to 90 days that affiliates – especially those outside the U.S. – must wait for commission checks to arrive can seem like a lifetime, and waiting in line at the bank to cash it is so 20th century.

While merchants might not be as anxious to see the money leave their accounts, replacing lost checks and answering calls about payments wastes time and money, and paper leaves an expensive trail. For recipients, being paid by check requires a trip to the bank and then waiting (there’s that word again) 24 hours or more for the check to clear.

Paper checks are also permanent – a discrepancy in the amount must be resolved by another check, or possibly returning the original draft. When merchants are issuing dozens or hundreds of checks per month, the cost of resolving disputed checks can pile up in a hurry. "Receiving a check is one of the more inconvenient payment methods," says Ron Hynes, vice president of product development of Prepaid for the Americas at MasterCard Worldwide.

Enter the electronic payment. No sitting by the window looking for a delivery person, currency exchange fees or checks that disappear into the ether. The other advantages of electronic payments – including faster processing, greater accuracy and lower transaction fees – all but guarantee that the paper check will soon become an endangered species in the online marketing space.

For the issuing party, there’s the printing (where errors occasionally happen), verifying and signing of the drafts and the stuffing of envelopes – all time-consuming tasks. Direct deposit to a recipient’s bank account is the most popular form of electronic payment, and it is increasingly being used for business-to-business transactions. B2B automated clearing house (ACH) payments grew by 10.9 percent between 2005 and 2006 to 2.3 billion transactions, according the Electronic Payments Association.

Alternative electronic payments that do not require a bank account for deposits are also on the rise, with services including PayPal and PaidByCash becoming commonly accepted methods of payment. In all, electronic payments represent more than 10 percent of online commerce transactions, and similar technology is being applied to B2B financial transactions. Adding to their attractiveness is their "green" quality, as eliminating paper checks saves trees, while fewer trips to the bank means less time behind the wheel.

Electronic payments have grown more rapidly in the consumer arena, but B2B is catching up, according to Edward Kountz, a senior analyst at JupiterResearch. "There’s more pent-up demand on the B2B side" of electronic payments, Kountz says. The lack of a unified payment standard has held back adoption, but more businesses are moving to paying electronically for the same reasons as companies accepting electronic payments – "to eliminate friction," he says.

Catching On With Networks

Performance networks are moving to electronic payments to eliminate the costs and administrative hassles of paying with paper. DoubleClick Performics began paying affiliates electronically through direct deposit in 2001, according to Ed Fleming, the company’s finance manager. DoubleClick Performics developed software that is integrated with its reporting and accounting system to streamline generating direct deposit payments. "It costs us about half the price of a stamp to process" a direct deposit payment, he says.

Currently DoubleClick Performics’ payments are split evenly between checks and electronic deposits, Fleming says. Affiliates that generate the most revenue are the most likely to participate in direct deposit. Fleming estimates that 90 percent of commission dollars are sent out electronically.

DoubleClick Performics regularly contacts affiliates to recruit more to accept being paid electronically, but some still prefer to be paid by check. Affiliates may decline to participate in direct deposit because they fear identity theft. "They don’t want to give out their banking information," Fleming says. DoubleClick Performics has had internal discussions about offering alternative electronic payment options, but there has been "no outcry or huge demand" from affiliates, according to Fleming.

Commission Junction currently offers direct deposit and is evaluating offering PayPal as an electronic payment option for affiliates, according to Dave Osman, the company’s vice president of Client Services. "There doesn’t seem to be a clear leader" in B2B electronic payments, he says. While electronic payments would save the company, "Our desire to eliminate [checks] is based on customer needs, not cost," Osman says.

LinkShare recently announced a new payment plan for publishers, which pays them weekly from the first dollar earned. By moving to a weekly payment schedule, LinkShare reduces publishers’ wait time to receive commissions and doubles the number of paydays. The new plan intends to help publishers improve their cash flow so they can invest resources in their growing businesses. LinkShare officials declined to comment for this article about its payment options.

PayPal, the eBay company that has popularized online funds transfers in the consumer realm, has developed software called MassPay for automating the processing of electronic B2B payments. MassPay can be integrated into payroll and reporting programs through a free application programming interface (API), according to Michael Oldenburg, Associate Manager of Corporate Communications for PayPal. T here are now 18 affiliate software applications that incorporate MassPay, including Affiliate Guerilla, AffiliateShop and MyAffiliateProgram.

Transaction fees for MassPay are up to 2 percent of the value of the transaction to a maximum of $1 per transaction and are paid by the issuing party, according to Oldenburg. Money can be transferred without cost from the online account to a PayPal debit card for off-line spending, he says.

Alternative Payment Options

As an alternative to direct deposit, networks are beginning to roll out debit cards that are linked to online accounts and accept electronic transfers. These cards, also known as "prepaid," "stored value," "reloadable," or "payroll" cards, do not require affiliates to provide bank account information – only a valid address is needed to initiate an account.

Prepaid cards have the same efficiencies as direct deposit without requiring a complex sign-up process, MasterCard’s Hynes says. Prepaid cards enable companies to eliminate commission checks altogether when used in combination with direct deposit, says Hynes, which works with banks and payment processing companies to distribute MasterCard-branded cards.

Payment companies Payoneer and Ecount as well as network Axill offer prepaid card services that have no start-up fees to the network, and the cards are free for the affiliates.

These cards offer the security of gift cards (if you lose the card there’s no access to a bank account) with the added benefit of third parties, such as networks being able to deposit funds electronically. Payoneer, of New York, offers MasterCard debit cards that can be used for shopping or to get cash through an ATM, according to Yuval Tal, CEO of Payoneer.

Although the cards are free to affiliates, there are fees of up to $2 for withdrawing funds through an ATM. Affiliates who are part-time workers and use commissions as discretionary income can find it advantageous to separate their earnings from their primary bank accounts.

Just as with direct deposit, the funds are available the same day of the funds transfers, Tal says. However, if a balance is kept on the card at the end of the month, Payoneer charges a fee. While paying a fee for someone to hold onto your deposit might seem counterintuitive, Tal says that the cost of tracking and administering held-over balances is more than any interest the company could make.

Electronic Payment Options

Merchants looking to accelerate their payment processing while eliminating the cost of paper and accounting hassles have several options for going electronic. Transaction fees vary to a maximum of a few dollars per transaction, but they are all superior to the cost of paper checks.

Direct Deposit It’s easy, universally understood and safe. However, it requires validating an affiliate’s bank account number. Finding international banks to participate can be costly and time-consuming.

PayPal Many affiliates already have existing accounts so they can be very comfortable in getting on board. Little to no information is required to recruit affiliates, and PayPal can pay out in 17 currencies.

Prepaid Debit Cards Ecount and Payoneer, along with many banks backed by Visa or Mastercard, offer cards linked to online accounts. With a minimal of software integration, publishers can issue payments from within their affiliate software. Affiliates can get cash through ATMs using a card with the network’s branding.

Affiliates who set up a Payoneer account can also direct funds from any network, even if Payoneer does not have a relationship with the network, according to Tal. Each Payoneer account includes a routing number that can be used for direct deposit, similar to a brick-and-mortar bank. Affiliates can also mail endorsed checks from Google, and Payoneer will deposit the funds into their debit account, Tal says.

Debit cards can be set up so that the networks pay most or all of the transaction fees. Tal says the per-transaction fee depends on the volume of funds that the network processes. Networks that use Payoneer include AmieStreet, ROI Rocket and JoeBucks. Gary McNelly, CEO of JoeBucks, a health and beauty affiliate network, chose Payoneer because the transaction fees are less expensive than implementing PayPal. Integrating Payoneer into his reporting system required just one hour of technical staff time, he says.

Ecount of Conshohocken, Pa., offers electronic payment systems that can be used by networks to compensate affiliates and for affiliates to offer rebates to consumers with minimal administrative costs. Jay Levin, senior vice president of consumer payments at Ecount, says companies can build loyalty by offering MasterCard debit cards with their branding. "Online marketers can be tough to get off-line branding," Levin says. Offering a branded card "will give them that viral feel." As an added benefit, affiliates that work with several networks are more likely to remember and positively view a network if the logo is on a debit card that they use for discretionary income.

Ecount requires a database or XML file from the network that can be submitted via FTP or email to generate electronic payments. The company creates a custom-branded website that cardholders access to check their account balances and payments.

Ecount’s debit cards can also be used as periodic rebates for signing up for a service, Levin says. Wireless phone carriers and cable companies have issued debit cards to new customers as an incentive for signing up. Part of the cost of a new phone or cable box is returned to the customer via monthly payments to a branded card, which builds consumer loyalty at a lower cost than issuing paper checks, according to Levin.

Axill, an international network located in Piscataway, N.J., has been aggressive in pursuing the expediency of electronic affiliate payouts. The company, which is a subsidiary of online marketer Northgate Technologies of India, offers same-day payouts to affiliates who sign up for the company’s Visa debit cards. However, same-day payouts are limited to affiliates that accrue a minimum of $25 in commissions. As with other debit cards, funds can be withdrawn at ATMs from the Axill-branded cards.

International Payment Options

Paying affiliates outside of the U.S. is often costly in transaction or currency exchange fees, and affiliates who are paid by check do not have immediate access to funds. Wire transfers can cost up to $50 each, and checks from U.S. banks can take up to a month to clear out of the country – if affiliates can find a local bank willing to cash them. Recipients living outside the U.S. may also be required to pay additional fees to exchange U.S. dollars for their local currency.

DoubleClick Performics’ Fleming says making payments to foreign banks "is by far the biggest issue" in using direct deposit. The fees (associated with foreign bank transfers) "are a drawback for using electronic payments" outside of the United States, he says.

PayPal’s MassPay enables publishers to issue payments in 17 currencies to 190 countries, with transaction fees of 30 cents each plus up to 2.9 percent of the balance, according to Oldenburg. A single batch of up to 250 payments can handle multiple currencies.

Since approximately 98 percent of his affiliates are outside of the U.S., JoeBucks’ McNelly says minimizing the cost and complexity of international payments was a must. Most of his new affiliates in India, Russia and Asia choose to be paid via a Payoneer account, and they like being notified by email of a funds transfer, he says. "We haven’t had many complaints [about using Payoneer], which is unusual, because [affiliates] complain about everything," he says.

Ecount can issue electronic payments to only U.S. and Canadian residents and will add three European markets in 2008.

Payment methods will continue to evolve with technology as merchants and online marketers look for ways to create efficiencies.

Going Global

Affiliate Networks are striving to extend their reach by entering foreign markets, but local challenges threaten their chances of international stardom.

If the affiliate model is effective for selling necklaces in Nantucket, shouldn’t it also work to move wurst in Wittenberg and mobiles in Manchester?

U.S.-based affiliate networks are hopeful that taking their business models to all four corners of the globe will translate into the same kind of success that they have enjoyed in North America. The networks see nations that have lagged behind the U.S. in embracing e-commerce as fertile ground for sowing the seed of performance marketing.

Commission Junction set down roots in the U.K. and Germany, while LinkShare put out its shingle in Japan. Both companies, as well as their European counterparts, have designs on extending their global footprint sooner rather than later. Commission Junction, LinkShare and Performics are the leading U.S. affiliate networks.

Going Gangbusters Globally

"My prediction for 2005 is that this will be the year that affiliate marketing truly goes global," says Heidi Messer, president and COO of LinkShare. Messer says the company "will be aggressive in expanding into Europe" and is interested in participating in the burgeoning economies of China, Korea and Australia.

LinkShare began its global odyssey three years ago, according to Messer, when it partnered with Mitsui & Company, a leading Japanese retailer. LinkShare provided the marketing platform while Mitsui contributed the business relationships and knowledge of the local requirements. "Going it alone wasn’t a possibility," says Messer, because each country has its own buying pattern, laws and culture.

Messer says LinkShare is evaluating opening networks in European countries on an individual basis. "We are very methodical and will not enter markets where we are not 100 percent committed," she says.

The increasing willingness of Europeans to purchase goods and services online makes the region a likely destination for American marketers, according to Hellen Omwando, an analyst with Forrester Research’s consumer markets group. Omwando says that within the first year of going online, 16 percent of Europeans now buy items such as travel and clothing, whereas in years past only 2 percent would have purchased commodity items such as CDs or books online in the first 12 months.

Omwando says that affiliates’ potential audience is also growing – 55 percent of Europeans online now participate in ecommerce. "It’s all good news from a consumer perspective," she says.

The United Kingdom and Germany are driving most of the growth in Europe and account for two-thirds of all e-commerce, according to Omwando. Not surprisingly, Commission Junction launched its first two European affiliate initiatives in those two countries.

"We are up to our eyeballs in international expansion," says Elizabeth Cholawsky, vice president of marketing and product development at Commission Junction. She adds that the company will next launch in France in mid-2005, and that Spain and Italy are also priorities for expansion.

By entering new markets, the company would be able to better serve its advertisers through an international network of websites, says Cholawsky. In addition to Europe, Commission Junction has launched eBay in India and Australia, and has China on its radar.

The most difficult aspect of Commission Junction’s European launch was not technological or cultural, but bureaucratic, according to Cholawsky. She says that because European tax officials are not well-versed in the intricacies of e-commerce, the company hired auditing firm PricewaterhouseCoopers to work with government representatives in the U.K. and Germany. The European Union’s adoption (with the exception of the U.K. and Switzerland) of the euro has simplified currency exchange.

The company hired a design firm from Germany and a language translation firm from Washington, D.C., to create a website acceptable to local affiliates, according to Cholawsky. She says launching in the U.K. first simplified establishing a presence in Germany. "Europe has more things in common than different," she says. "Culturally it’s similar all around."

European expansion has contributed to Commission Junction’s rapid growth. The company’s revenue jumped from $24 million in 2003 to an estimated $54 million in 2004, says Cholawsky.

Affiliate network Performics is unlikely to join the European fray this year, according to Chris Henger, senior vice president. He says Performics is focusing on integrating its resources with new parent company DoubleClick. "In the longer term you could see us moving in that direction, but it’s not an immediate strategy," Henger says.

Navigating the Potholes

Ashley Friedlein, CEO of London-based E-Consultancy.com, says that incumbent local companies have the upper hand over Americans in attracting retailers. "European merchants want to deal with companies who understand their markets," he says.

Citizens of each country have their own preferred methods of purchase, revenue model, topselling products and legal requirements, according to Friedlein. Europeans are much more likely to purchase products through their mobile phones, and the laws for online data protection and privacy protections vary from country to country, he says.

European e-commerce trends run about six to 10 months behind the U.S., Friedlein says. And European affiliates continue to use the pay-per-click revenue model that Americans have largely moved beyond, according to Friedlein. Search engine marketing in Europe requires local expertise, especially for American companies used to operating in a Googlecentric universe.

Europeans have their own searchengine marketing techniques, and affiliates and merchants are working out how to cooperate with search partners, according to Friedlein. He says that affiliates and retailers have been in a bidding war over getting priority for brand names in search engine rankings. "It’s a bone of contention," he says.

One similarity with American affiliate marketing is that merchants depend on a few affiliates for most of their revenues. "I reckon that 90 percent of sales come from 10 percent of affiliates," Friedlein says.

Affiliate marketing’s rapid growth in Europe has made it difficult for retailers to find in-house expertise to manage their programs, according to Friedlein. Many large retailers do not have a dedicated affiliate manager, so the responsibility is either part of the marketer’s job, or it’s outsourced.

European sales generated through affiliates during 2004 are estimated at $1.1 billion, a 100 percent increase over the previous year, Friedlein says, and he expects similar growth this year. Friedlein says 3.5 percent of all e-commerce sales in Europe are generated by affiliates.

Forrester’s Omwando warns that while affiliate marketing in Europe is in a comparatively early stage of development, Americans looking to land on the Continent in 2005 may have a hard time forging relationships. Europe already has three significant networks in place: Zanox in Germany; TradeDoubler, which has operations in 16 nations; and Commission Junction, which began its U.K. operation in 2001.

She says retailers unfamiliar with affiliate marketing are unlikely to partner with a foreign entity. "Marketing at the end of the day is very localized, and anyone participating has to understand the nuances and cultural sensitivities," Omwando says.

For example, to work with German companies, networks must first establish relationships with the local trade associations, Omwando says.

"I really don’t see what the opportunity is for American companies," she says. To have any chance at attracting European retailers, American companies must bring with them an impressive roster of international advertisers, according to Omwando.

Inevitable Intersection

The American networks’ grab for affiliates abroad will put them in direct competition with European companies that also have designs on expanding into Asia, and perhaps even in the U.S.

TradeDoubler poses a formidable challenge to foreign competitors. The company has been in operation since 1999 and has a presence in 16 European countries.

It is assessing possible expansion into Asia, and clients have frequently asked TradeDoubler to consider opening an office in the U.S., according to Will Cooper, chief marketing officer.

"Having a pan-European footprint has given us access to the world’s largest advertisers," says Cooper, who counts Dell, Apple, Sony and Reebok among his clients. TradeDoubler’s network includes more than 800 advertisers and 450,000 publishers across Europe.

Cooper says the challenge of starting networks in several European countries should not be underestimated. Each country has a unique cultural and business climate that requires networks to retool their business model, he says. "Every market is so incredibly different in terms of things such as broadband penetration, size of market and payment models," Cooper says.

While Spain and the U.K. are both large markets with populations of more than 40 million, their e-commerce demographics are quite different, according to Cooper. The U.K. has the most mature e-commerce marketplace, and the costper- action revenue model works well. But Spain has very different characteristics. "The culture is not to buy online. People prefer being able to touch the products," Cooper says, and cost-per-click is the preferred commission structure.

Heavier reliance on mobile phones provides another opportunity for networks looking to move into Europe. TradeDoubler developed a program for Swedish mobile phone users who are more comfortable with brick-and-mortar purchases. Customers can download coupons that contain an identification number for the referring affiliate to their mobile phones, which they take to the checkout counter where scanners read the coupons.

Another example of a TradeDoubler affiliate program designed for a specific country is its British lottery program. After registering online, Britains text message their Lotto picks, which takes advantage of the U.K.’s interest in mobile phone e-commerce.

Zanox, an affiliate network based in Germany that spans 22 European countries, launched the ring-tone download service Jamster in the U.S. and Australia. "You cannot compare Europe and the States," says Holger Kamin, Zanox’s executive account director.

Kamin says his company has an advantage over American networks because it has already established relationships with major retailers in Europe and provides many affiliate services, including consulting, email permission marketing programs and a transaction platform.

The cultural differences between countries that share a common language can be difficult for non-Europeans to understand. "You can’t think that because they speak the same language in Austria, Switzerland and Germany that the culture is the same," Kamin says.

To succeed in the long term, affiliate networks must have international reach, according to Kamin. "This business is global," he says. Kamin predicts that the market will consolidate to five top-tier international affiliate networks that will compete with smaller regional players.

Northern Exposure

American affiliate networks are not alone in their hemisphere in seeking a share of the international marketing dollars. Canadian affiliates are enjoying success selling products such as prescription medicine, adult content and sports books in the United States.

Nicky Senyard, CEO of Montreal-based network ShareResults.com, says merchants in her country are significantly behind their southern neighbors in understanding affiliate marketing. "Online merchants don’t know what they are or how they are to be used," Senyard says. Many Canadian affiliates are currently selling American products, but her company and others are educating Canadians on the possibilities of selling their goods in the U.S.

Just as Commission Junction and others are now operating networks in Canada, she expects that Canadian networks will increasingly do business in the U.S. "[Opportunity] flows in both directions," Senyard says.

American networks that wait until 2006 to launch European initiatives may find the window of opportunity closed. Local companies who become established with retailers now will have a definite advantage, according to Gary Stein, a senior analyst with Jupiter Research. "The advantage is to the incumbent," Stein says. U.S.-based advertisers who are expanding their European online marketing programs have to weigh the factors of familiarity with American networks versus local expertise, according to Stein. "There are arguments on both sides of the equation."

JOHN GARTNER is a freelance writer in Portland, Ore. He is a former editor at Wired News and CMP. His articles regularly appear on Wired.com, AlertNet.org and in MIT’s TechnologyReview.com.