July 20, 2010 (Investorideas.com newswire) www.InvestorIdeas.com and its leading tech investor portal, Techsectorstocks.com issue commentary on ecommerce trends from Lisa Springer, CFA.

 

Equity research analyst and financial writer, featuring eLayaway (OTCBB: ELAY), a company that provides ecommerce solutions for consumers and businesses.

 

Layaway Programs Stage a Revival  

Lisa Springer, CFA - Equity research analyst and financial writer

Companies: eLayaway (OTCBB: ELAY), Sears Holdings Corporation (NasdaqNM: SHLD)

 

Layaways plans are making a comeback. These plans, which allow cash-strapped consumers to pay for goods interest-free over an extended period of time, first appeared during the Great Depression, but their popularity waned in the 1980s due to credit cards.

The recent resurgence of interest in layaway plans is attributable to credit card interest rates that continue to rise and growing reluctance by consumers to carry high credit card balances.

 Because of Credit Card Act restrictions and the lingering recession, card issuers are raising rates to near record levels and tightening lending standards, making it more difficult and expensive for the typical consumer to borrow.  According to CreditCards.com, the average interest rate on a newly issued credit card has increased to 14.43% from just 12.87% six months ago. To avoid high interest charges, consumers are trimming credit card debt, which fell for the 20th consecutive month in May, according to Federal Reserve data. At its peak in 2008 US credit card debt stood at $976 billion, but that balance has since plunged by nearly $145 billion. The average US household eliminated nearly $2,900 in credit card debt during that period.

 

Some consumers are using prepaid debit cards to make purchases, and spending for these is forecast to soar to $118.5 billion by 2012 from $8.7 billion in 2008, according to research firm Mercator Advisory Group.

 

Another popular solution is layaway plans, which allow consumers to make payments over time while avoiding high credit card interest rates. A recent national survey confirmed that 73% of Americans agree that layaway plans are a smart financial solution that can help them better manage their spending. In addition, 55.5% of consumers expressed interest in learning more about layaway as a year-round financial planning tool and 82.2% agreed they would rather forgo the instant gratification of financing their purchases in favor of using layaway.

 

Hundreds of retailers, including household names such as Toys-R-Us, Sears (Sears Holdings Corporation (NasdaqNM: SHLD) and K-Mart, have taken notice of this trend and begun offering layaway plans. K-Mart has experienced double-digit growth in its layaway program since re-introducing it in 2008 and K-Mart and Sears together brought in three million new customers through their layaway programs in 2008 and 2009. Sears recently decided to extend its layaway program to major appliances in response to a national survey showing 33% of consumers would consider using layaway for home appliance purchases and this retailer also plans to begin offering an extended in-store layaway program this fall.

Recently public eLayawayÒ (OTCBB: ELAY) has developed the Internet’s first and only online payment system for layaway purchases and is thus ideally positioned to capitalize on this purchasing trend. ELAY uses a proprietary processor to calculate manageable periodic payments that make purchases affordable, and then deducts the payments automatically from the user’s bank account via Automated Clearing House (ACH) on a schedule chosen by the customer at the time of the purchase. Instead of 14% credit card rates, the customer is charged a flat 1.9% fee. ELAY holds the periodic payments in trust at HSBC Bank and transfers the funds to the merchant when full payment is made. The consumer then receives the goods or services from the merchant. ELAY provides payment processing and support services while the merchant handles order fulfillment.  

 

Over 700 merchants currently offer the eLayaway® plan on their corporate web site. Merchants see eLayaway®  as a valuable tool for increasing sales and attracting customers who don’t have credit cards or access to traditional bank credit. Nearly half of all consumers don’t qualify for credit due to the current restrictive lending environment and there is a large portion of the US population that never had access to credit. According to the FDIC (Federal Deposit Insurance Corp.), 25.6% of US households, or some 80 million Americans, are “underbanked,” some because they defaulted on a loan before, but many others simply because they lack a sufficient credit history. These consumers have trouble getting a bank account, let alone a credit card, even though they have never missed a loan payment. Retail banks are writing off these customers, who are unwilling to pay high monthly fees or overdraft fees or bring them multiple banking “relationships.”

 

The eLayaway® program allows merchants to increase market share and make additional sales on an immediate basis while reducing the administrative requirements of traditional layaway. ELAY has quickly emerged as the leader in layaway payment processing. Since it began providing these services in 2005, ELAY has registered over 78,000 members and processed more than $4 million in payment transactions. The Company believes its addressable markets include both online and brick and mortar retailers, which together generate some $1.3 trillion in potential annual layaway sales, as well as sports, travel and health services. ELAY diversifies credit risk by generating revenues from multiple sources, including service/processing fees from merchants and consumers and interest earned from funds held in trust, and plans to begin offering a Merchant Advertising Program later this year. 

 

 

Lisa Springer, CFA

Bio and disclaimer: http://www.investorideas.com/About/Lisa-Springer-CFA/

The author, Lisa Springer, was compensated for writing this article and doesn’t own shares of any of the companies mentioned in this article. 

 

 

About eLayawayÒ (OTCBB: ELAY) 

 eLayawayÒ (OTCBB: ELAY) is the leading provider of layaway payment processing technology. The patent-pending payment system allows companies to expand their consumer base to millions of credit-conscious shoppers by providing them with a flexible payment plan that fits their budget. eLayaway markets layaway payment processing and management services directly to online and brick and mortar retailers. eLayawayÒ allows consumers and businesses to make both small and large purchases such as season tickets for sports teams or future vacations on cruise lines.

 

The eLayawayMall has an affiliate relationship with Best Buy, Bass Pro Shops, Apple Store, The Home Depot, and many more including gift cards from Amazon.com, Carnival, JCPenney, Lowes, and Nike.

 

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Source – Investorideas.com; eLayaway (OTCBB: ELAY)