A Rebound for Credit Cards Online Will Slow Gains for Alternatives

Various payment alternatives will continue to grow in volume and claim more share of Web-based sales, but the dramatic gains of recent years will moderate as credit cards stage a partial comeback, according to a forecast released this week. Alternative payment methods, which have proliferated in variety over the past couple of years and include such systems as PayPal, Google Checkout, and eBillme, accounted for $33 billion in online sales last year, up fully 50% from 2008, according to Javelin Strategy & Research, which issued the forecast. That's good for a 16% share of total online commerce, compared to 12% in 2008, Javelin says. But while alternatives will continue to enjoy robust growth in coming years, their share gains will be far less dramatic, says Beth Robertson, director of payments research and consulting at Pleasanton, Calif.-based Javelin and author of the firm's forecast. “There's going to be some stabilization of share for all [payment] methods, partly because of the rebounding of credit,” she tells Digital Transactions News. Robertson says an improving economy will lead some consumers to return to higher usage of credit products, which they have cut back on since the onset of the recession and credit crunch in 2008. This retrenchment led in part to a surge of usage of cash-like products online, including some alternative payment methods. But Robertson expects credit cards will begin to rebound next year, “though not to the levels [where] it used to be.” For alternative payments, that means online dollar volume will continue to grow at high rates, but these companies, which include a number of startups as well as established players, can't expect to absorb share of Internet sales at the rates they enjoyed in recent years. Javelin projects alternatives will account for $40 billion in online sales this year, a number that will almost double to $79 billion in 2014. Share of all online sales will level off, however, at 17% this year and next and rise only to 19% in four years, Javelin says. Javelin includes online auction sales and travel-site commerce in its computation of total Internet sales volume. By this measure, it projects overall online volume grew to $205 billion in 2009, up from $185 billion in 2008. It will hit $237 billion this year and exceed $400 billion in 2014, the firm forecasts. A rebound for credit cards online, however, means the cards will slow the erosion of their share of online commerce rather than re-establish their former dominance of the Web channel, where they were once practically unchallenged as the sole payment method. Javelin says the struggling economy pushed online credit card volume down to $89 billion in 2009 from $101 billion the year before. That cost the cards fully 11 points of market share, as they slid from 55% to 44%. The rebound will see credit cards climb to $99 billon this year and $121 billion 2011, Javelin projects, before reaching $162 billion in 2014. Share of online volume will continue to slip, but at a much slower rate, going from 42% in 2010 to 39% four years from now. Debit card activity online, meanwhile, will rise from $67 billion this year to $105 billion in 2014, while their share drops from 28% to 26%. Javelin's figures refer only to signature debit, since PIN debit is only beginning to emerge online. Indeed, Robertson doesn't see any significant traffic for PIN debit online until after 2014. “It's a longer-term thing,” she notes. Prepaid cards will grow nicely online, Javelin forecasts, rising from $15 billion and a 6.5% share this year to $38 billion and a 9.3% share in 2014. Online merchants have been attracted to alternative payments because, in some cases at least, they are less costly to accept than credit cards. Robertson says merchants that want to encourage consumers to use alternatives will want to emphasize discounts and rewards along with transaction security. Price discounts, in particular, appear to carry a lot of weight with consumers. In asking online users why they consider a new form of payment, Javelin found discounts on purchases came in first at 54% of respondents, compared to 29% for loyalty or rewards programs. Security-related benefits, including protection from fraud or misuse of information and ability to keep identity private, also scored high, at 46% and 41% respectively. “These are all ways of generating interest, of getting a consumer to try that [alternative] out for the first time,” Robertson says.