Online Consumer Payments - This report examines the way in which consumers pay for goods and services online. It also highlights which payment solutions have been successful and which have failed, indicating the key components of a 'winning' online paymen

Online Consumer Payments - This report examines the way in which consumers pay for goods and services online. It also highlights which payment solutions have been successful and which have failed, indicating the key components of a 'winning' online paymen

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.

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.

Overview 1
Catalyst 1
Summary 1
Table of Contents 2
Table of figures 3
Table of tables 4
Introduction 5
What is this report about? 5
Who is the target reader? 5
Scope of the report 5
Datamonitor's definition of an online consumer payment 5
Trends in Online Consumer Payments 6
Introduction 6
Key findings 6
Growth in the number of internet users has been impressive, the majority of whom shop online 7
The number of internet users has been growing rapidly and accounts for 16.9% of the total world population 7
The majority of global internet users are in Asia Pacific 7
However, the highest penetration of internet users is in North America 8
The availability of broadband has contributed to this rapid growth 10
The vast majority of global internet users made a purchase online 12
North America and Europe enjoy the highest penetration levels of consumers who shop online 12
Online consumer payment volumes continue growing rapidly on both sides of the Atlantic 14
Online commerce has been growing rapidly in Europe and the US 14
Germany, the UK and France are the largest online markets in Europe 15
Consumers in Europe and the US are spending increasingly more online than they did several years ago 17
The online consumer spending in Europe is estimated to triple by 2010 17
Germany is forecast to be the largest market for online commerce 18
Online commerce is growing in Asia Pacific, where Chinese consumers spent €25.4 billion online in 2006 18
The relative importance of the retail sector to the service-related industry may vary across markets 18
Online retail spending accounts for a small but a growing share of total retail sales 19
Books and holiday-related items are the most popular items bought online across the globe 20
The credit card is the most frequently used payment method online, while PayPal and prepaid cards are becoming more widespread 22
Debit cards are not widely used for online payments 23
PayPal is growing rapidly and is among the top five payment methods online 24
Prepaid cards are least commonly used but are becoming more widespread 24
Over half of European retailers have a website but fewer accept payments online 25
55% of firms in Europe have a website 25
However, only one in four businesses use the internet as a sales channel 26
The majority of merchants in Europe receive between 5% and 25% of their total orders online 26
Realizing the Online Payment Opportunity 28
Introduction 28
Key Findings 28
Measures to tackle fraud have achieved the primary aim but have reduced ease of use 28
Fear of online fraud deters one in eight EU adults from online commerce 28
The industry has responded with a number of initiatives to improve CNP security 30
The number of subscribers to 3D Secure initiatives is growing 30
Card readers have the potential to be introduced in online commerce 31
Failure to innovate effectively has left tightening security as the only option for issuers 33
Virtual card numbers have been tried by several players, but with only limited success 33
The development of 3D Secure restricted the use of virtual cards 34
Virtual prepaid cards aim to meet the needs of the unbanked and wary consumers, but are niche at best 34
Visa 3V card: a unique prepaid card program with virtual applications 34
eWallets have also emerged as an online payment tool, but fortunes have also largely failed 35
Microsoft, Egg, and Securicor all tried but failed in this space 36
Past failure to meet the needs of consumers will cost the industry dear without innovation 37
The growth of auction websites created a payment market the card industry did not serve 37
The gap in the market was filled by PayPal, now the leading non-card online payment tool 37
PayPal has developed the global reach of its service rapidly since the eBay acquisition 38
PayPal's transaction volumes are the same scale as the payment card markets in Austria and Denmark 38
PayPal's fraud losses are also extremely low 39
PayPal's success has seen other non-bank players look to create online payment platforms 39
Yahoo launched PayDirect in 2000, but left the market in 2005 39
Google launched Google Checkout in 2006 to target the B2C market 40
Amazon tested a web payments service in 2007 40
These players are now a genuine threat to existing card issuers in the B2C payment space 41
PayPal is already established in the B2C payment space and has attracted merchants of all sizes 41
Google and Amazon explicitly target B2C and have aggressively priced their offerings to attract merchants 41
Indeed, PayPal now has credit and debit cards issued under its brand and has launched a mobile service 42
Branded credit and debit cards are a significant step towards competing in the wider banking space 42
The launch of a mobile payment service is a further development into the B2C space 42
To protect future revenues from online payments, the industry must innovate 43
Better integrating 3D Secure into payment processes would increase take-up 43
Developing more co-brand and loyalty offerings in the online space would grow card use online 44
A scheme driven online payment service could leverage the reputation of the payment industry 44
Moving to a system built around credit transfer, rather than cards, is worth considering 44
APPENDIX 45
Supplementary data 45
Definitions 49
B2B 49
B2C 49
Credit card 49
Commercial card 49
Debit card 49
ePurse 49
eWallet 49
Macro payment 50
Micropayment 50
Mobile payment 50
P2P 50
PDA 50
PIN 50
Prepaid card 50
This is a card that cardholders can load up and then only spend the amount that is loaded on the card. Some prepaid cards can be reloaded, while others can be used only once. There are different types of prepaid card, ranging from ePurses to gift cards to travel cards. 50
Reverse billing 50
Smart card 50
SMS 50
Methodology 51
Further reading 51
Ask the analyst 52
Datamonitor consulting 52
Disclaimer 52
List of Tables
Table 1: The US has the largest number of internet users globally, 2006 10
Table 2: Broadband subscribers in Europe and the US, 2006 11
Table 3: Online commerce in Europe and the US forecast to 2010, 2001-10f 16
Table 4: Online commerce in Europe and the US forecast to 2010, 2001-10f 16
Table 5: Electrical goods, food and groceries and clothing and footwear are the most popular among online shoppers in the UK, 2001-06 22
Table 6: 55% of firms in Europe have a website, 2006 25
Table 7: The Czech Republic and the UK have the largest number of firms that have a website, 2006 26
Table 8: One in eight adults do not shop over the Internet due to fear of fraud, 2007 29
Table 9: Fees and limits for the 3V Visa prepaid vouchers, 2008 35
Table 10: eBay facts and figures, 2002-06 37
Table 11: PayPal facts and figures, 2007 38
Table 12: PayPal's number of accounts, transactions and value of transactions globally, 2003-07 39
Table 13: Internet users segmented by region, 2002-06 45
Table 14: World population segmented by region, 2002-06 45
Table 15: Broadband subscribers globally forecast to 2011, 2002-11f 46
Table 16: Spend per internet user in Europe and the US, 2002 and 2006 46
Table 17: Internet users in Europe and the US, 2002 and 2006 46
Table 18: Online consumer spending in the US segmented by retail and services sectors, 2001-05 47
Table 19: Online consumer spending in the UK segmented by retail and services sector, 2001-06 47
Table 20: Online retail consumer spending in the UK and the US, 2001-05 47
Table 21: The share of online spending by retail sector by UK consumers, 2001-06 48
Table 22: Percentage of European firms receiving a certain proportion of their orders online, 2006 48
Table 23: Current relevant Datamonitor publications, 2008 51
Table 24: Future relevant Datamonitor publications, 2008 52
List of Figures
Figure 1: The number of internet users has grown by 20.2% over 2002-06 7
Figure 2: 40% of global internet users are in Asia Pacific, 2006 8
Figure 3: North America has the highest penetration of internet users, 2006 9
Figure 4: Broadband users are forecast to grow by 51.7% over 2007-11 12
Figure 5: 77% of global internet users have made a purchase at least once over the internet, 2005 13
Figure 6: Germany, Austria and the UK have the largest number of internet users who have used the internet to make purchases, 2005 14
Figure 7: The online commerce is growing rapidly in Europe and the US, 2001-06 15
Figure 8: The average spend per internet user in the UK has become comparable to the US, 2001-05 17
Figure 9: The service sector accounts for the majority of online spending in the UK, 2001 and 2005 19
Figure 10: Online retail spending in the UK and the US accounts for 3.1% and 2.5% of total retail sales respectively, 2005 20
Figure 11: Books, videos/DVDs and games are the most popular items purchased online but holiday related items (airline and hotel reservations) are also important, 2005 21
Figure 12: 59% of internet consumers have used a credit card to make a purchase online , 2005 23
Figure 13: Credit card is the preferred method of payment online, 2005 24
Figure 14: Merchants in the footwear and food and beverage sectors typically receive less than 5% of their total orders online, 2006 27
Figure 15: Barclays PINSentry is a further attempt to tighten security in the online space, 2008 32