Shift to alternative payment options as online transactions soar

Shift to alternative payment options as online transactions soar

The number of online transactions will more than double to reach $355.2 billion by 2012, according to a US study released by Javelin Research & Strategy which also predicts increasing take up "alternative payment methods" such as PayPal.

Overall online payments will grow from $150.4 billion to $355.2 billion over the next five years, says Javelin.

But the study also shows that alternative payment methods will increase to gain 30% of all online transaction volume by 2012, up from 14% in 2007.

Although credit card use will continue to represent the largest dollar amount growth, the percent of online transaction volume will decrease from 60% to 44% by 2012 as consumers switch to alternative methods such as stored-value, e-mail payments and instant credit.

Of all the alternative payment options, e-mail payment accounts - primarily PayPal - will see the biggest growth, jumping from five per cent to 11% by 2012. According to the study, increased PayPal transaction sizes will also contribute to the overall growth in online transactions.

Javelin researchers also predict that prepaid and gift cards will grab five per cent more of all online transactions, due to increased acceptance and availability.

Meanwhile customer loyalty will help fuel a four per cent online transaction increase for store-branded credit cards by 2012. Instant credit services, such as Bill Me Later, will likely see a small jump and may experience a boom with the emergence of PayPal's "Pay Later" service, says Javelin.

Bruce Cundiff, a senior analyst with Javelin Research & Strategy, says consumers now view alternative payment methods as a trusted and viable way to pay for online purchases.

Cundiff says he also expects to see alternative methods used for offline purchases - as well as online - over time.

"More consumers may prefer to use alternative payment methods instead of credit cards, online and in person," he says. "But overall, we see continuing growth of online transactions and a decline of paper payment methods."

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