Online Consumer Payments

SUMMARY

Abstract

Overview

Introduction

Online consumer payment volumes continue to grow rapidly as more consumers warm to the online experience and begin to purchase goods and services online with an increasing appetite. As a result, the online consumer payments market is becoming competitive, fast moving and volatile. Having said this, the opportunities provided by online commerce are vast and should not be overlooked.

Scope

• The scope of the discussion in this report is restricted to B2C (business-to-consumer) online commerce globally.
• In the B2C online commerce both goods and service sectors are considered.
• Although the bulk of the data provided covers Europe and the US, where possible general consumer trends are considered on a global scale.
• Online payment mechanisms discussed in this briefing include credit and debit cards, prepaid cards, eWallets and P2P payments solutions.

Report Highlights

Credit card is the preferred method of payment online among consumers globally. However, ultimately the credit card does not perform well in a card-not-present context - the need to create 3D Secure protocols highlights this.

Therefore, the credit card is flawed as an online payment tool and issuers must innovate to defend their share of the market from non-card providers.

Indeed, PayPal has grown strongly into a major online payment solution provider. In 2007, €34.3 billion of PayPal transactions were made; equivalent in size to the value of card transactions in Austria.

Reasons to Purchase

• Online Consumer Payments examines the past, present and future of the online consumer payment market.
• It highlights which payment solutions have been developed, indicating the key components of a 'winning' online payment solution.
• Use this report to understand key trends relating to consumer's and merchant's behaviour online and their attitudes towards the online environment.

TABLE OF CONTENTS

Table of Contents

• Overview
  • Catalyst
  • Summary
• Table of Contents
• Table of figures
• Table of tables
• Introduction
  • What is this report about?
  • Who is the target reader?
  • Scope of the report
  • Datamonitor's definition of an online consumer payment
• Trends in Online Consumer Payments
  • Introduction
    • Key findings
  • Growth in the number of internet users has beenimpressive, the majority of whom shop online
    • The number of internet users has been growing rapidly andaccounts for 16.9% of the total world population
      • The majority of global internet users are in Asia Pacific
      • However, the highest penetration of internet users is inNorth America
      • The availability of broadband has contributed to thisrapid growth
    • The vast majority of global internet users made a purchaseonline
      • North America and Europe enjoy the highest penetrationlevels of consumers who shop online
  • Online consumer payment volumes continue growing rapidlyon both sides of the Atlantic
    • Online commerce has been growing rapidly in Europe and theUS
      • Germany, the UK and France are the largest online marketsin Europe
      • Consumers in Europe and the US are spending increasinglymore online than they did several years ago
    • The online consumer spending in Europe is estimated totriple by 2010
      • Germany is forecast to be the largest market for onlinecommerce
    • Online commerce is growing in Asia Pacific, where Chineseconsumers spent €25.4 billion online in 2006
    • The relative importance of the retail sector to theservice-related industry may vary across markets
    • Online retail spending accounts for a small but a growingshare of total retail sales
      • Books and holiday-related items are the most popular itemsbought online across the globe
  • The credit card is the most frequently used payment methodonline, while PayPal and prepaid cards are becoming more widespread
    • Debit cards are not widely used for online payments
    • PayPal is growing rapidly and is among the top fivepayment methods online
    • Prepaid cards are least commonly used but are becomingmore widespread
  • Over half of European retailers have a website but feweraccept payments online
    • 55% of firms in Europe have a website
      • However, only one in four businesses use the internet as asales channel
      • The majority of merchants in Europe receive between 5% and25% of their total orders online
• Realizing the Online Payment Opportunity
  • Introduction
    • Key Findings
  • Measures to tackle fraud have achieved the primary aim buthave reduced ease of use
    • Fear of online fraud deters one in eight EU adults fromonline commerce
    • The industry has responded with a number of initiatives toimprove CNP security
      • The number of subscribers to 3D Secure initiatives isgrowing
      • Card readers have the potential to be introduced in onlinecommerce
  • Failure to innovate effectively has left tighteningsecurity as the only option for issuers
    • Virtual card numbers have been tried by several players,but with only limited success
      • The development of 3D Secure restricted the use of virtualcards
    • Virtual prepaid cards aim to meet the needs of theunbanked and wary consumers, but are niche at best
      • Visa 3V card: a unique prepaid card program with virtualapplications
    • eWallets have also emerged as an online payment tool, butfortunes have also largely failed
      • Microsoft, Egg, and Securicor all tried but failed in thisspace
  • Past failure to meet the needs of consumers will cost theindustry dear without innovation
    • The growth of auction websites created a payment marketthe card industry did not serve
    • The gap in the market was filled by PayPal, now theleading non-card online payment tool
      • PayPal has developed the global reach of its servicerapidly since the eBay acquisition
      • PayPal's transaction volumes are the same scale as thepayment card markets in Austria and Denmark
      • PayPal's fraud losses are also extremely low
    • PayPal's success has seen other non-bank players look tocreate online payment platforms
      • Yahoo launched PayDirect in 2000, but left the market in2005
      • Google launched Google Checkout in 2006 to target the B2Cmarket
      • Amazon tested a web payments service in 2007
    • These players are now a genuine threat to existing cardissuers in the B2C payment space
      • PayPal is already established in the B2C payment space andhas attracted merchants of all sizes
      • Google and Amazon explicitly target B2C and haveaggressively priced their offerings to attract merchants
    • Indeed, PayPal now has credit and debit cards issued underits brand and has launched a mobile service
      • Branded credit and debit cards are a significant steptowards competing in the wider banking space
      • The launch of a mobile payment service is a furtherdevelopment into the B2C space
    • To protect future revenues from online payments, theindustry must innovate
      • Better integrating 3D Secure into payment processes wouldincrease take-up
      • Developing more co-brand and loyalty offerings in theonline space would grow card use online
      • A scheme driven online payment service could leverage thereputation of the payment industry
      • Moving to a system built around credit transfer, ratherthan cards, is worth considering
• APPENDIX
  • Supplementary data
  • Definitions
    • B2B
    • B2C
    • Credit card
    • Commercial card
    • Debit card
    • ePurse
    • eWallet
    • Macro payment
    • Micropayment
    • Mobile payment
    • P2P
    • PDA
    • PIN
    • Prepaid card
      • This is a card that cardholders can load up and then onlyspend the amount that is loaded on the card. Some prepaid cards can bereloaded, while others can be used only once. There are different types ofprepaid card, ranging from ePurses to gift cards to travel cards.
    • Reverse billing
    • Smart card
    • SMS
  • Methodology
  • Further reading
  • Ask the analyst
  • Datamonitor consulting
  • Disclaimer
• List of Tables
  • Table 1: The US has the largest number of internet usersglobally, 2006
  • Table 2: Broadband subscribers in Europe and the US,2006
  • Table 3: Online commerce in Europe and the US forecastto 2010, 2001-10f
  • Table 4: Online commerce in Europe and the US forecastto 2010, 2001-10f
  • Table 5: Electrical goods, food and groceries andclothing and footwear are the most popular among online shoppers in theUK, 2001-06
  • Table 6: 55% of firms in Europe have a website, 2006
  • Table 7: The Czech Republic and the UK have the largestnumber of firms that have a website, 2006
  • Table 8: One in eight adults do not shop over theInternet due to fear of fraud, 2007
  • Table 9: Fees and limits for the 3V Visa prepaidvouchers, 2008
  • Table 10: eBay facts and figures, 2002-06
  • Table 11: PayPal facts and figures, 2007
  • Table 12: PayPal's number of accounts, transactions andvalue of transactions globally, 2003-07
  • Table 13: Internet users segmented by region, 2002-06
  • Table 14: World population segmented by region, 2002-06
  • Table 15: Broadband subscribers globally forecast to2011, 2002-11f
  • Table 16: Spend per internet user in Europe and the US,2002 and 2006
  • Table 17: Internet users in Europe and the US, 2002 and2006
  • Table 18: Online consumer spending in the US segmentedby retail and services sectors, 2001-05
  • Table 19: Online consumer spending in the UK segmentedby retail and services sector, 2001-06
  • Table 20: Online retail consumer spending in the UK andthe US, 2001-05
  • Table 21: The share of online spending by retail sectorby UK consumers, 2001-06
  • Table 22: Percentage of European firms receiving acertain proportion of their orders online, 2006
  • Table 23: Current relevant Datamonitor publications,2008
  • Table 24: Future relevant Datamonitor publications, 2008
• List of Figures
  • Figure 1: The number of internet users has grown by20.2% over 2002-06
  • Figure 2: 40% of global internet users are in AsiaPacific, 2006
  • Figure 3: North America has the highest penetration ofinternet users, 2006
  • Figure 4: Broadband users are forecast to grow by 51.7%over 2007-11
  • Figure 5: 77% of global internet users have made apurchase at least once over the internet, 2005
  • Figure 6: Germany, Austria and the UK have the largestnumber of internet users who have used the internet to make purchases,2005
  • Figure 7: The online commerce is growing rapidly inEurope and the US, 2001-06
  • Figure 8: The average spend per internet user in the UKhas become comparable to the US, 2001-05
  • Figure 9: The service sector accounts for the majorityof online spending in the UK, 2001 and 2005
  • Figure 10: Online retail spending in the UK and the USaccounts for 3.1% and 2.5% of total retail sales respectively, 2005
  • Figure 11: Books, videos/DVDs and games are the mostpopular items purchased online but holiday related items (airline andhotel reservations) are also important, 2005
  • Figure 12: 59% of internet consumers have used a creditcard to make a purchase online , 2005
  • Figure 13: Credit card is the preferred method ofpayment online, 2005
  • Figure 14: Merchants in the footwear and food andbeverage sectors typically receive less than 5% of their total ordersonline, 2006
  • Figure 15: Barclays PINSentry is a further attempt totighten security in the online space, 2008