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Online Payments: Cards Not Present?

Synopsis

This report looks at the current state of the online payment market, what consumers expect from their online payment providers, and how new entrants are threatening the role of the payment card in the future online payment space.

Description

INTRODUCTION

The growth of online commerce has driven huge change in the payments landscape. While payment cards remain the default option for the majority of transactions, non-bank entrants are taking a growing share of the global market. This report provides deep insight into the trends driving change, as well as the payment innovations threatening the future role for cards in online commerce.

FEATURES AND BENEFITS

  • Understand the growth of the global online payment space and the factors that have driven the market.
  • Successfully target online shoppers by understanding what they want and how they pay for online products and services.
  • Plan your strategy effectively by learning about key barriers to online shopping and consumer preferences to online payment tools.
  • Gain insight into how the new players in the online payment market are threatening to the payment cards industry.

HIGHLIGHTS

  • Datamonitor's Online Consumer Payment Model shows that the size of global online commerce reached $727bn in 2011. The credit card is still a clear choice for online shoppers due to its convenience, but security remains a major concern that the card industry faces. Only 19% of consumers indicated that they use credit cards for their security.
  • Online commerce will continue to grow across the 21 countries featured in the report, but the US is about to be overtaken by China. Datamonitor forecasts that 2014 will be a turning point, with the Chinese and the US online commerce markets drawing level, leaving China poised to overtake the US in early 2015.
  • The blurring of online, mobile, and offline commerce will intensify over the next 12 months. The pace of technological change means that the challenge has now moved on from providing a payment solution for a particular channel to creating a payment tool that creates a consistent user experience through several different payment channels.

YOUR KEY QUESTIONS ANSWERED

  • How big is the online payment market, and which merchant categories do consumers spend their money with?
  • What are the barriers to online shopping in my market, and how can these be overcome?
  • What is the expected growth for the online payment space and where will this growth come from?
  • How do consumers make online payments, and how much of a threat is coming from non-card payment products?
  • What are the opportunities and threats for the global payment industry, both now and in the future?

TOC

OVERVIEW

  • Catalyst
  • Summary

EXECUTIVE SUMMARY

  • Online payments: where we are today and how we got here
  • Datamonitor analyzes consumer-to-business online payments
  • The emergence of the digital wallet threatens the link between bank and consumer
  • Online banking e-payment targets payments to domestic online merchants
  • The card industry has focused on improving security through two-factor authentication
  • Online commerce is a huge and rapidly growing market
  • Online commerce was a $727bn market in 2011, with the US the largest single country
  • Infrastructure improvement has resulted in particularly strong growth in economically developing countries
  • Payment cards remain the leading choice, but alternatives are growing in popularity
  • Flight and hotel bookings are still the biggest online payment sector
  • Understanding consumer attitudes toward online payments
  • There are three barriers to online commerce: infrastructure, security and the online experience
  • Convenience and comfort are the driving factors behind the popularity of credit cards as an online payment tool
  • The future of online payments
  • Online commerce will reach $1.4tn by 2014
  • Digital wallets and OBeP will erode the share of payment cards in online payments

ONLINE PAYMENTS: WHERE WE ARE TODAY AND HOW WE GOT HERE

  • Introduction
  • Datamonitor analyzes consumer-to-business online payments in this report
  • The emergence of the digital wallet threatens the link between bank and consumer
  • Defining online payment providers and digital wallets in the context of this report
  • Digital wallets act as a payment hub for online transactions, sitting between bank and consumer
  • PayPal pioneered the digital wallet a decade ago, but competition will be fierce in 2012
  • Online banking e-payment targets payments to domestic online merchants
  • Online banking e-payment leverages the existing Internet banking infrastructure
  • iDEAL is an OBeP success story, while others are ready to roll out
  • The card industry has focused on improving security through two-factor authentication
  • The payment card industry has added security layers to combat fraud, at the expense of convenience
  • The use of one-time passwords offers two-factor authentication for online payments

SIZING THE GLOBAL ONLINE PAYMENT MARKET

  • Online commerce is a huge and rapidly growing market
  • Online commerce was a $727bn market in 2011, with the US the largest single country
  • Online commerce has experienced strong double digit growth in most countries
  • Households in Sweden and Australia spend the most over the Internet
  • Online commerce is equal to 4.7% of the total value of global consumer retail
  • Payment cards remain the leading choice, but alternatives are growing in popularity
  • The credit card is the clear leading choice for online shoppers due to its convenience
  • However, the selection of online payment tools varies greatly by country
  • Big ticket items dominate global online commerce
  • Flight and hotel bookings are still the biggest online payment sector

UNDERSTANDING CONSUMER ATTITUDES TOWARD ONLINE PAYMENTS

  • The concept of online commerce is well received, but barriers remain
  • The majority of consumers in developed countries have purchased online
  • There are three barriers to online commerce: infrastructure, security, and the online experience
  • Generational change will support further growth in online commerce
  • Convenience and comfort are the driving factors behind choice of online payment tool
  • Credit cards are still the number one choice for consumers
  • Consumers are comfortable with credit cards for online payments, but have concerns about their security
  • Consumers favor digital wallet services due to their convenience and perceived security
  • Cash on delivery is still a dominant payment channel in emerging countries
  • Online fraud has a substantial impact on consumer behavior, driving some away from online commerce

THE FUTURE OF ONLINE PAYMENTS

  • Growth in online commerce will be strongest in the east
  • Online commerce will reach $1.4tn by 2014
  • Low value digital services and big ticket items will play a key role in the future growth of online payments
  • Digital wallets and online banking e-payment will erode the share of payment cards in online payments
  • The weak user experience will see cards continue to face challenges from dedicated online payment tools
  • Growth in the use of digital wallets will drive the integration of online, mobile, and offline commerce
  • OBeP has the potential to be popular among customers, but poses challenges to the issuing business

APPENDIX

  • Supplementary data
  • Definitions
  • (Untitled sub-section)
  • Methodology
  • Further reading
  • Ask the analyst
  • Disclaimer

TABLES

  • Table: The value of online payments by country ($m), 2011
  • Table: The average online spend per household by country ($), 2011
  • Table: Online spend as a proportion of retail spending by country, 2011
  • Table: Online commerce penetration by country, 2011
  • Table: Reasons for consumers not shopping online by age group, 2011
  • Table: Reasons for consumers not shopping online (infrastructure factors), 2011
  • Table: Proportion of consumers who have experienced online fraud and their level of concern toward online fraud in the future by country, 2011
  • Table: Responses to "I prefer to be able to browse items in a store" as a reason for not shopping online by age group, 2011
  • Table: Popularity of online payment tools among consumers globally, 2011
  • Table: Different factors that influenced consumers' choice of online payment tools, 2011 (part 1)
  • Table: Different factors that influenced consumers' choice of online payment tools, 2011 (part 2)

FIGURES

  • Figure: Credit cards are the number one payment tool used in online commerce
  • Figure: The digital wallet acts as a payment hub for a consumer's online transactions, cutting the funding source out of the loop
  • Figure: American Express introduced Serve to offer online, offline, and mobile payment services
  • Figure: Visa announced that V.me will launch in early 2012
  • Figure: OBeP leverages the existing Internet banking infrastructure
  • Figure: 3-D Secure become a global standard for online payment authentication
  • Figure: Mobile OTPs can be used with 3-D Secure to increase online payment security
  • Figure: MasterCard launched the world's first OTP display card in 2010
  • Figure: The US remained the biggest online payment market in 2011
  • Figure: Households in Sweden and Australia spent the most over the Internet
  • Figure: Online spending accounted for 4.7% of the global consumer retail total in 2011
  • Figure: Credit cards are the number one payment tool used in online commerce
  • Figure: Choice of online payment tools varies by countries
  • Figure: Credit cards are most popular in Japan, but the US still accounts for the largest level of online credit card transaction values
  • Figure: Cash payments account for a sizable proportion of online commerce transactions
  • Figure: Flight and hotel bookings are still the biggest online payment sector
  • Figure: Electrical goods and clothing are larger than the flights and hotels category in Russia and South Korea
  • Figure: Almost one in three consumers globally have purchased products or services over the Internet at least once
  • Figure: Online experience issues are the main reason consumers do not shop online, but the youngest demographics also have issues with infrastructure
  • Figure: Consumers face different hurdles to shopping online in different countries
  • Figure: Lack of access to payment tools is a major barrier to online commerce
  • Figure: The fear of fraud has always been a major influence on the online channel
  • Figure: Some consumers do not like shopping over the Internet, and prefer to be able to browse items in a store
  • Figure: An inability to browse items instore is not a major barrier to online commerce for the younger generations
  • Figure: Credit cards are still the number one choice for online payments
  • Figure: Different factors influence consumer choice of online payment tools
  • Figure: Cash on delivery is still a n important payment method in countries with underdeveloped payment infrastructures
  • Figure: Online fraud has a substantial impact on consumer behaviors
  • Figure: The global online payment market is expected to reach $1.4tn by 2014
  • Figure: China is set to become the world's largest online commerce market
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