Consumers shopping online are increasingly turning away from traditional financial institution-controlled credit and debit cards to embrace cash-based alternative payment options, according to an analysis by US-based Javelin Strategy & Research.
Javelin's 2008 Online Retail Payments Forecast suggests the current economic turmoil is taking its toll on credit card usage for online purchases, paving the way for further uptake of alternative methods during the busy holiday shopping season. As the trend takes hold, nearly one-third of retail transactions are expected to be made using alternative payments by 2013, says the study, representing a growing challenge to banks and traditional card schemes.
"Although Javelin's forecast predicts online debit and credit card usage will continue to dominate and grow," says Javelin president and founder, James Van Dyke. "Alternative payment methods are becoming a preferred choice by many consumers shopping online and will continue to grow over the next five years, steadily increasing to one-third of the online retail transaction volume."
Van Dyke adds: "During this year's holiday shopping season we project $7.8 billion will come from alternative payments versus $35 billion from traditional online payment methods."
The overall projected growth for online payments is expected to reach $148 billion in 2008, climbing to $268 billion by 2013. The shift in growth rates during the five year period trends faster for alternatives, especially those that have built brand awareness with consumers, such as PayPal; as well as alternatives for traditional companies such as pre-paid and stored value loyalty cards. Up-and-coming contenders, such as Nacha SVP, Google Checkout and Revolution Money among others, will further queer the pitch for the traditionalists.
Bruce Cundiff, Javelin's director of payments research and consulting, suggests that banks and traditional card brands that don't want to risk erosion of online transaction volume should expand their own prepaid card product offerings, while partnering with alternative providers.
"By integrating alternative payments, financial institutions will maintain their position and status as the 'agent' for online payments," he says.