More online shoppers will use alternative payment options, Javelin predicts
Online consumers will increasingly adopt payment methods other than credit and debit cards, primarily for reasons of convenience and security, predicts a new report from research and consulting firm Javelin Strategy & Research.
Alternative payment methods will account for 30% of online purchases in 2012, up from 14% today, Javelin predicts. Credit cards’ share will drop from 60% to 44% while debit cards hold steady at around 27%.
“Online alternative payments methods such as PayPal and Bill Me Later which have traditionally been used by early adopters will be more commonly used by mainstream individuals, who will temper their use of credit cards as they adopt these new online methods,” writes analyst Bruce Cundiff in the report entitled “Online Payments Forecast: Alternative Payments Go Mainstream as Consumers Seek Security and Convenience.” He says it is a growing desire by current online shoppers for security and convenience that will drive the shift, not new individuals coming to online shopping with different payment preferences.
Javelin projects that U.S. consumers will buy $355 billion online in 2012, up from $150 billion in 2007, a compound annual growth rate of 18.5%.While credit cards’ share of payments will fall, the dollar volume charged to credit cards will increase in that period from $89.8 billion to $156 billion. Debit cards, particularly favored by younger consumers with less access to credit, will grow at a 19.3% rate from $38.8 billion this year to $93.9 billion in 2012, Javelin predicts.
But alternative payment methods will grow much faster, the report suggests. E-mail payment methods, a category dominated by PayPal, will grow at a 38.7% rate from $7.8 billion to $40 billion. “On-the-spot” credit offers, notably Bill Me Later and the recently launched PayPal Pay later, will grow from $3.2 billion to $9.5 billion, a 24.3% growth rate, Javelin says.
Greater convenience is a primary reason consumers use these alternatives, cited by 61% of those who pay with PayPal and 65% of Bill Me Later users in a Javelin survey of individuals who had shopped online in the past year. Bill Me Later users also were the most likely (37%) to cite a discount or benefit—such as the 90 days same as cash offer often available from Bill Me Later merchants—as the reason they used that payment method. Users of these methods were also the most likely to cite security as a reason for their preference, cited by 43% of Bill Me Later and 40% of PayPal users.
Debit card users were most likely (22%) to say they chose that payment method because it was the only one they had. “Merchants who may wish to move customers using debit to other forms of payment may be able to do so simply by offering more payment options, and conveying the availability of such alternatives to their customer base,” the report says.
Two other alternative payment types also will grow rapidly in the next five years, Javelin predicts. Stored value products, including gift cards, will account for $32.1 billion in online purchase volume in 2012, up from $5.4 billion this year, a 42.7% growth rate. And private-label credit offerings will grow from $5.3 billion in purchases to $23.7 billion, a 35% growth rate, according to Javelin.
Back...
