February 19, 2010, 12:00 AM

Credit cards are losing some luster with online shoppers

Online shoppers have increasingly turned to prepaid, gift and debit cards, along with so-called alternative payments such as PayPal and Google Checkout, according to a new report.

Zak Stambor

Managing Editor

Online shoppers have increasingly turned to prepaid, gift and debit cards, along with so-called alternative payments such as PayPal and Google Checkout, according to new research from Javelin Strategy & Research.

Credit cards remain the preferred payment method for online shoppers, capturing 43.5% of the online total payments volume in 2009, Javelin says. The research firm estimates that consumers spent $205 billion online in 2009. The share of credit card payments, however, will decline to 39.4% in 2014, Javelin predicts.

Debit cards also will represent a smaller share of online payments, declining to 25.6% in 2014 from 28% in 2009. Meanwhile, prepaid and gift cards will account for 10.7% of online payments by 2014, up from 6.6% in 2009, while PayPal, Google Checkout and other alternative payment methods will capture 19.2% of online purchases in 2014, up from 15.9% in 2009. The remainder, about 5%, will come from store-branded credit cards.

By 2014, prepaid and gift cards will have the highest compound annual growth rate for online payment forms between 2009 and 2014-26%. “Prepaid and gift cards are hitting stride in the online payments environment,” says Javelin analyst Elizabeth Robertson. A large part of the reason for the growth of non-credit card payments is that consumers, shaken by the recession and high debt loads, have switched to more immediate methods of payments rather than credit card borrowing.

Javelin says 63% of U.S. adults shop online, with 78% expected to do so by 2014. The mean amount of annual online purchases will increase to $2,849 by 2014, up from $1,973 in 2009.

Even with the projected growth, online merchants will have to make sure consumers feel safe paying for goods online. “Perceived security continues to be a major factor affecting interest in online shopping and the selection of specific payment options,” Robertson says. “It is incumbent on merchants, processors and networks to maintain advance security features and to make consumers aware that these capabilities are in place.”

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