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Online Volume Grows 13% As Mobile Traffic and Bill Me Later Surge
December 11, 2012

Retail purchases online will reach $318 billion this year, up a healthy 13% from 2011, with mobile transactions accounting for more than 6% of that volume, according to a new report from Javelin Strategy & Research. This year marks the first time mobile-originated transactions have accounted for a meaningful share of online purchase volume, says Beth Robertson, director of payments research at Pleasanton, Calif.-based Javelin and co-author of the report, "5th Annual Online Retail Payments Forecast 2012-2017."

Overall, online transaction volume has nearly doubled just since 2006, when transactions totaled $163 billion. Among payment methods, general-purpose credit cards are still leading the way, but transactional credit in the form of PayPal Inc.’s Bill Me Later is surging at a torrid pace.

The report forecasts that online transactions will cross the $400-billion level in 2015 and hit $458 billion in 2017, for a nearly 8% average annual growth rate.

Historically the most popular form of payment for online transactions, credit cards have lost the overwhelming dominance they once enjoyed but still command 42% of volume, a share Javelin expects to remain steady through 2017. No other single payment method comes close to that share. Often used for big-ticket buys, credit cards also account for the leading average order value, at $88.53, up more than $6 from last year.

The share loser will be debit cards, which will grow in usage but not fast enough to keep up with the growth of e-commerce. Debit’s share will shrink from 29% to 25%, Javelin predicts. Debit remains popular at the point of sale, but consumers have historically feared using it for online purchases, the report says. Debit has also been hobbled by the Durbin Amendment, which capped big issuers’ interchange income and led them to cut back on debit rewards programs and promotion.

Alternative-payment methods like PayPal and Amazon Payments will continue to gain share, growing from 16% to fully one-fifth of online volume five years from now. But PayPal has a secret weapon in its race with Amazon and other alternative-payment players: Bill Me Later. The spot-credit provider, which PayPal parent eBay Inc. bought in 2008 for $945 million, is now used by 21% of consumers who use alternative payment options for online purchases, according to Javelin’s research. That’s up from just 1% only two years ago. At that rate, Bill Me Later easily exceeds Google Checkout (11%) and is catching up with Amazon Payments/Checkout by Amazon (26%). PayPal is far and away the kingpin among alternative players, claiming 84% of users.

After four years, Bill Me Later’s affiliation with PayPal is paying off, says Robertson. “Once it was acquired by [eBay], it had access to a larger number of [PayPal] merchants,” she says. “That helped make it more visible.” Making it, and PayPal, more visible now, she adds, is a price-match promotion PayPal launched a few weeks ago for the holiday season. The policy, which extends to both PayPal and Bill Me Later purchases, also throws in free return shipping if necessary.

At $20.3 billion, mobile volume now represents a 6.4% slice of the total online market, marking mobile’s emergence into significance as a generator of online traffic. Robertson says Javelin decided to start measuring mobile-originated online sales this year after stores in 2011 began for the first time reporting measurable mobile activity after Thanksgiving. “”The pick-up in [mobile] Black Friday sales in 2011 was enough to tell us we should start tracking it,” she notes. “The information was that people were using their mobile devices, which is why we did our forecasts in both the mobile and online environments.”

For all the online activity, whether from laptops or mobile devices, e-commerce sales still account for a relatively modest 7.4% of all retail sales, a share that will grow to 10% by 2017, Javelin says.

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