April 17, 2008, 12:00 AM

Alternative payments growing in popularity for online purchases

Debit card online transaction volume will increase to $93.9 billion by 2012, up from $38.8 billion in 2007, accounting for about 26% of total U.S. online transactions, a study says.

Paul Demery

Managing Editor, B2B E-commerce

Alternative payments will account for an increasing percentage of U.S. online transactions by 2012, according to a recent study from Javelin Strategy and Research.

Debit card online transaction volume will increase to $93.9 billion by 2012, up from $38.8 billion in 2007, accounting for about 26% of total U.S. online transactions, Javelin says. Online debit volume is expected to grow at a compound annual growth rate of 19.3% through 2012.

The growth in online use of debit cards is primarily attributable to the growth in debit card usage in general, although younger consumers are opting for debit cards as a primary online payment option, Javelin says. The emergence of rewards programs linked to signature debit may contribute to growth, according to the study.

Javelin also estimates that online volume from e-mail payment accounts, such as PayPal, will increase to $40 billion by 2012, up from $7.8 billion in 2007, and will represent 11% of total online transaction volume. E-mail account volume, dominated by PayPal, will have a compound annual growth rate of 38% through 2012. Javelin forecasts that the average PayPal transaction at a retail site will reach $40 in 2012, up from $32 in 2007.

Stored-value products-merchant-specific gift cards and network-branded products-will grow at a 43% compound annual growth rate to $32.1 billion in 2012 from $5.4 billion in 2007, Javelin estimates. Stored-value cards will account for about 9% of total U.S. online volume by 2012, propelled by increased growth in multi-channel usage of in-store programs.

In addition, online private label payment card transactions are expected to total $23.7 billion by 2012, up from $5.3 billion in 2007, representing 7% of total online U.S. transaction volume, Javelin says. Private-label transactions will grow at a compound annual growth rate of 35% through 2012.

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