Javelin's 2008 Online Retail Payments Forecast

The study finds that while online payments represents only 3.5% of total retail sales in 2008, consumers are steadily increasing adoption of alternative payment types, replacing transactions from the traditional, financial institution-controlled credit and debit cards.

“Although Javelin’s forecast predicts online debit and credit card usage will continue to dominate and grow,” said Javelin president and founder, James Van Dyke. “Alternative payment methods are becoming a preferred choice by many consumers shopping online and will continue to grow over the next five years, steadily increasing to one-third of the online retail transaction volume.”

Van Dyke adds, “During this year’s holiday shopping season we project $7.8 billion will come from alternative payments versus $35 billion from traditional online payment methods.”

The overall projected growth for online payments is expected to reach $148 billion in 2008, climbing to $268 billion by 2013. The essential shift in growth rates during the five year period trends faster for alternatives, especially those that have built brand awareness with consumers, such as PayPal; as well as alternatives for traditional companies such as Stored Value.

Javelin’s study delves into all of the alternative payment companies and forecasts each payment category’s expected transaction volume. In addition to the established alternative payment companies, it highlights a new wave of emerging alternative payments firms, which may further erode traditional credit card usage online—yet actually preserve the role of financial institutions in payment transactions.

Well-branded alternative payments companies have benefited from the current economic pressures as consumers seek more cash-based solutions. The forecast demonstrates how the channel-shift toward alternatives impacts traditional financial institutions, suggesting they proactively develop an alternative payments strategy.

“Banks and traditional card brands that don’t want to risk erosion of online transaction volume should expand their own prepaid card product offerings, while partnering with alternative providers,” said Bruce Cundiff, Javelin’s director of payments research and consulting. “By integrating alternative payments, financial institutions will maintain their position and status as the ‘agent’ for online payments.”