December 17, 2010, 4:12 PM

Credit cards become less popular among online consumers

A Javelin report forecasts the continuing rise of alternative payments.

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Credit cards are still the king of online payments, but competitors are inching closer to the throne.

Survey results released this week by Javelin Strategy & Research suggest that credit cards account for 40% of online payments when measured by dollar volume, down from 44% last year. Debit cards account for 29% of online payments, up slightly from 28% last year. Alternative payments such as PayPal and Google Checkout capture 17% of online payments, up from 16%, while prepaid and gift cards are used for 8% of online spending, up from 7% last year. Store-branded credit cards held steady at 6%.

Javelin blamed the bad economy for the decline in credit card use.

“A doubling of the unemployment rate from 2007 to 2010 increased the risk associated with unsecured revolving credit, led to a surge of delinquencies and late payments and resulted in a decrease in credit availability,” says James Van Dyke, Javelin’s president and founder. “Consumer use of credit cards for online payments has sharply declined as issuers have tightened credit.”

Javelin based its finding on surveys conducted in September of 4,998 online consumers, along with other data such as U.S. Census e-commerce estimates. Credit card use will decline to 37% of online spending in 2015, the research company forecasts, which much of the slack taken up by the alternative payments, which Javelin expects will increase to 20%. Debit card use will remain roughly steady at 28%.

Recent moves by the federal government could lower debit card interchange fees paid by merchants.

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