The Rise of Alternative Payments October 13, 2008

In the next five years, online transactions will more than double, reaching $355.2 billion, reports a consumer study in the U.S. from Javelin Research and Strategy.  According to the findings, by 2012, 30% of Americans will use alternative payment solutions for internet transactions instead of relying on their credit cards. In 2007, alternative payments accounted for 14% of transactions. The study also foresees that of all the alternative payment options, email payment accounts, like the accounts offered by Paystone, will see the largest growth, reaching 11% by 2012.

What is causing this striking shift in payment processing? Increased popularity of alternative payment systems can be attributed to the current economic situation. With  the credit market tightening, many people are looking to alternative payment solutions to fund their online shopping. This opens the way for services such as Paystone, that are debit based and funded by “cash” from a North American bank account, to take the place of credit card transactions.

Javelin researchers also found that people are turning to alternative payments for their convenience and enhanced security features. The Paystone system, for example, enables consumers to make online purchases without sharing any sensitive information with merchants, such as bank account numbers or billing information. This type of protection is becoming increasingly important to consumers.

Alternative payment solutions also offer benefits to merchants, and help to remedy shopping cart abandonment. By offering alternative payment options, merchants allow their customers the flexibility to choose the most convenient method of payment for them.  Merchants can create new sales opportunities by catering to their customers without credit cards or who no longer want to use credit cards for their purchases.

This is not deemed a short lived fad. “Although it took nearly a decade for alternative payment methods to secure their position in the online world, it’s apparent that everyday consumers are ready to view them as a trusted and viable way to buy online,” said Bruce Cundiff, a senior analyst with Javelin Strategy & Research. A recent survey conducted by First Annapolis Consulting found that 47 percent of the top 500 online retailers in the U.S. accept at least one alternative payment method.

It is believed that with the transformation of the payments industry, alternative payment methods will become mainstream.  This isn’t simply a trend… the way that people want to shop online and pay for goods is undergoing an evolution. Is your web store keeping up?

For  a copy of the complete Online Payments Forecast: Alternative Payments to Go Mainstream as Consumers Seek Security and Convenience, please visit www.javelinstrategy.com/research

Sources: Ecommerce Journal, Ecommerce Times, Javelin Strategy and Research