Alternative payments such as digital wallets and direct debits are set to overtake credit card payments as the predominant payment method in e-commerce, according to stats from WorldPay.
WorldPay's new study, 'Optimising Your Alternative Payments', found that while credit and debit cards are the most common form of payment in the UK and US, in other European and emerging nations the use of alternative payments (APs) is growing rapidly.
APs are defined as anything other than credit or debit card payments.
This includes real time bank transfers, offline credit transfers, direct debits, eWallets, paper based payments and mobile payments.
Today APs account for €165bn of global e-commerce transactions across the world (22% of total transactional value) so e-tailers that only accept credit or debit cards are potentially missing out on a huge proportion of global customers.
However the market is extremely fragmented, so which options should merchants consider?
WorldPay predicts that eWallets will increase market share in the AP industry from 36% to 43% by 2015, while real time bank transfers will increase from 12% to 20%.
To pre-empt this trend, MasterCard and Visa have unveiled their own eWallet products in recent months. Visa initially unveiled its new payment system, V.me, last year but this week announced the first beta of its service with online retailer Buy.com.
Not to be outdone, MasterCard announced that it was expanding its mobile payment service PayPass into a larger eWallet service called PayPass Wallet Services.
But in truth they are both playing catch-up with PayPal, at least in the UK and US.
WorldPay's stats show that PayPal owns more than half the AP market in the US and around 45% in the UK.
However in other major nations the market is far more fragmented (click on the image to see a larger version).
The use of AP also varies significantly when looking at different industries.
The figures in this table give an indication of the usage of AP in each vertical, however WorldPay says that due to the fragmented nature of each industry the statistics have an error variance of 6%.
When looking more closely at the UK, the report found that AP equates to just 11% of total e-commerce transactions.
With total UK e-commerce revenues standing at €142bn at present (almost matching the rest of Europe at €157bn), even a comparatively lowly 11% warrants further investigation."
WorldPay recommends that online retailers should definitely consider integrating PayPal, as well as other AP methods.
A combination of the paper based, eWallet and bank transfer schemes outlined above should be the aim for anyone looking to ensure that their payment bases are covered in the UK.
Offering alternative payment methods makes sense for retailers. While many are clearly happy to use credit or debit cards, there are potential online consumers that would prefer to use methods such as PayPal as they have concerns about fraud, or have no credit or debit card due to debt issues.
Retailers such as Kiddicare and Firebox have sensibly covered all bases, and allow provide plenty of payment options for customers.
On Firebox, customers can even pay cash (via a PayPoint at a local newsagent) if they prefer:
But while major global online retailers may consider different payment options, the dominance of card payments and PayPal in the UK means that we are unlikely to see a rush to AP methods in the near future.
WorldPay's data was collected via online research among 1,820 merchants operating online in the USA, UK, Australia, Canada, France and Germany.
In-depth interviews were also conducted with 40 global merchants and 10 payment experts.
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