The lack of alternative online payment options slows e-commerce adoption
The lack of alternative online payment options to credit cards is slowing consumers’ adoption of e-commerce, Dan Schatt, senior analyst at Celent Communications, told Internet Retailer 2006 Conference & Exhibition attendees in Chicago on Tuesday.
“There are lots of consumers who just simply will not make an online purchase because they are concerned that their credit card data is going to be misused or intercepted,” Schatt says. “The main reason the growth rate is slowing down is because users have security concerns, and there are not a lot of payment options out there.”
The percentage of Internet users who have made online purchases grew at a compound annual growth rate of 12.7% between 2000 and 2002, Schatt says. That compares with a 3.2% compound annual growth rate of 3.2% between 2002 and 2005.
Online merchants also are looking for alternative payment options because measures instituted by the card companies to prevent fraud make card acceptance costly for Internet retailers, Schatt says.
Because of those measures, fraud accounts for 1% or less of chargebacks, he says. “But obviously, lowering the fraud rates has come at a significant cost. Over $1 billion a year is spent to getting fraud rates where they are online.”
Consumers’ and merchants’ concerns about credit card use mean there is a pent-up demand for alternative payment vehicles that are less costly and more secure, Schatt says And there are alternative payment vehicles that could meet that demand, including PIN debit, automated clearinghouse payments, PayPal, invoicing and Bill Me Later, he says.
Those alternative payment options could account for up to 26% of all online payments by 2009, up from 14% of all payment volumes this year, he says.
But implementing alternative payment options requires more effort than just posting a payment brand’s logo on the web site, Alicia Berry, director of operations for DVD Empire, told conference attendees.
“There are all different kinds of problems and issues,” she says. “You’re dealing with other companies, other servers, all different kinds of people, a turnover in salespeople. It’s not an easy process.”
Because of the massive effort needed to introduce a payment option, retailers need to really understand their customer base before initiating the process, Berry says.
“Specifically, most of your customers who don’t have credit cards probably can’t afford your product,” she says. “To jump through those hoops and pay additional transaction rates, it’s not worth your time.”
Berry based her remarks on her own experiences at DVD Empire. “When Internet Retailer asked me to do this conference six months ago, I had grandiose plans to implement all these payment methods,” she says. “I’ve implemented none of them.”
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