In light of economic uncertainty, consumers have been seeking deals and completing purchases with cash or debit card accounts, but now are growing more confident in using credit cards, according to new research from Javelin Strategy & Research, a provider of financial services, payments and security benchmarks.
The company’s recent “Payments Forecast Report” indicates that online credit volume is expected to rise from $124 billion in 2011 to $201 billion in 2016, a significant increase in payment type compared to debit accounts, alternative payments, prepaid credit cards and retailer-branded accounts. Growth in online credit volume is due in part to new acquisition initiatives such as point-based loyalty programs, according to Beth Robertson, Director of Payments Research, Javelin Strategy & Research.
“There is a general attitudinal difference regarding credit cards,” Robertson said. “Although consumers still are cautious of spending, credit issuers are revamping their customer acquisition and retention plans by targeting customers with rewards programs and loyalty initiatives. If consumers can get discounts and other incentives, they’re more inclined to use credit cards.”
Conversely, online transactions completed with debit cards have hit a plateau, according to the report. Overall online debit card volume is expected to grow from $92.9 billion in 2011 to $102 billion in 2014. However, debit purchases will continue to decline to $94.5 billion in 2016. This change can be attributed to regulations such as the Durbin Amendment, which has placed significant limits on free- and rewards-based checking account programs, according to Robertson.
“Over the last few years, there has been a notable decrease in the use of credit cards and an increase in debit,” Robertson said. “However, that’s going to be changing directions, as long as current debit card regulations take hold.”
Findings and predictions were gathered based on data collected online by Javelin in August 2011 from a random sample of 2,304 consumers. Secondary data was derived from public sources such as the U.S. Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis and Office of Management and Budget. The primary goal of the study was to better determine purchasing preferences and behaviors of today’s online shoppers, noted Robertson.
“We wanted to track payment methods in the online arena as well as general consumer attitudes of specific forms of purchasing via e-Commerce,” Robertson said. “We’re analyzing how each individual form of payment contributes to overall trends in online payment activity.”
Bill Me Later, Prepaid Credit Cards Come To The Forefront
The domestic e-Commerce market has experienced a healthy boost throughout 2011, rising 16% from $266 billion in 2010 to $309 billion in 2011. To keep pace with this growing market and better serve customers, retailers are implementing alternative payment options, such as Bill Me Later. This option provides a similar, delayed purchase advantage as credit cards but has different qualifications that don’t require consumers to have account information in-hand at all times. Overall, Bill Me Later is an easier process and can increase order value for retailers, according to Robertson.
To that end, PayPal’s Bill Me Later service has experienced explosive usage, with a 130% growth from 2010 to 2011. These results are derived from PayPal’s positive reputation as a reliable and secure payment source, according to Robertson. “PayPal has been a strong player in alternative payments, both from a merchant and consumer perspective,” she explained. “The significant growth of Bill Me Later usage primarily is due to its relationship with PayPal and its presence on more e-Commerce sites.”
Prepaid credit cards also are emerging as a way for consumers to manage spending more efficiently. Javelin research anticipates a compound annual growth rate of 10.3% for the category, increasing from $20.8 billion in 2011 to $32 billion in 2016. Similarly, retailer-branded credit purchases are expected to reach $25.6 billion in 2016, versus $16.7 billion in 2011. Although both forms of e-Commerce payment are gaining consumer mind share, prepaid accounts are more flexible for everyday use, while retailer-branded credit cards are more beneficial for loyal shoppers, according to Robertson.
“Unless consumers shop frequently at a particular retailer, and enjoy receiving the coupons and offers that come with using a retailer-specific credit card, prepaid plans are more flexible and are accepted at a larger variety of stores,” Robertson said.