Alternative payments service providers in the internet commerce
arena, such as PayPal and Bill Me Later, will continue to gain
ground at the expense of branded credit cards, believes Bruce
Cundiff, a senior analyst at US consultancy Javelin Strategy &
Research. Cundiff forecasts that alternatives to bank cards will
account for 30 percent of a $355.3 billion US retail internet
commerce market in 2012, up from 14 percent of a $150.4 billion
market this year. His analysis was based on interviews conducted
with online merchants.

According to Cundiff, leading the way among the alternative methods
will be e-mail-based payments, primarily represented by PayPal.
These now control 5 percent of US internet retail online and will
rise to 11 percent by 2012. He forecasts that prepaid and gift
cards will account for 9 percent of online sales in five years, up
from 4 percent, while credit-based, non-card services such as Bill
Me Later will increase their share to 3 percent from 2
percent.

What was particularly surprising, continued Cundiff, were reasons
given by merchants for their migration to alternative payments
services. “What I expected to find is that it’s all about cost,”
said Cundiff, referring to current litigation between retailers and
the bank card networks over interchange fees and the frequency with
which merchants generally decry the rising costs of accepting
general-purpose cards.

He explained that while cost is an important issue, it’s not an
overriding issue. Indeed, his research revealed that reducing
acceptance costs lags behind four other reasons. These are:
increasing average order value, a desire to reach new customers,
marketing and associated outreach opportunities, and the chance to
engage customers through popular or emerging payment
channels.