Consumer Attitudes to Online Payments

Introduction

Online commerce has moved from being a niche market segment to a key channel for both consumers and merchants, creating huge opportunities for the payments industry. This report examines the key trends in global online commerce, how consumers make these payments and the factors that drive these decisions. Key strategies for growing the share of online payments made by cards completes the analysis.

Scope

*In-depth analysis of global consumer trends in online payments provides insight into the factors that drive payment behaviour on the internet.

*Analysis of these trends is used to provide the payments industry with a series of strategic insights to help grow their share of this market.

*Granular market sizing data for the full year 2009 quantifies precisely what consumers are buying online and how those transactions are made.

*Discussion of the factors limiting growth in online commerce highlights where issuers, schemes and retailers need to improve to grow this market.

Highlights

Datamonitor's Online Consumer Payments Model shows that the value of global online commerce will reach EUR1.09 trillion by the end of 2009. This accounts for just below 6% of total retail spending, showing both the scale of online commerce and also the further scope for it to expand in the future.

The good news for card issuers is that credit and debit cards account for the majority of online transactions. In 2009, credit cards will account for 45.3% of the global online market while debit cards will account for 17.1%. Datamonitor estimates that the share of PayPal will be around 5.2%.

Convenience, not security, has the greatest impact on consumer choice in online payments. Despite credit cards being ranked the least secure form of payment, they account for the largest share of the market. At the same time, credit cards are seen as the most convenient payment tool. This has important implications for the payment industry.

Reasons to Purchase

*Understand the key factors driving consumer payments online, particularly the importance of security and convenience on payment tool choice

*Gain access to Datamonitor's unique Online Consumer Payments Model - with granular market sizing data for 15 major developed and emerging countries.

*Learn which product and marketing strategies will maximise the future online payments opportunity.


Report Highlights

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Overview 1
Catalyst 1
Summary 1
Methodology 1
Table of Contents 2
Table of figures 3
Table of tables 4
Introduction 5
Financial Services Consumer Insight: dispelling the myths surrounding online behaviors 5
At the core of this report is Datamonitor's Online Consumer Payments Model 5
This database is built around Datamonitor's Financial Services Consumer Insight survey 5
Differences in the interpretation of payment terminology should be considered 6
Consumer Attitudes to Online Payments 7
Changing shopping habits and rising internet access have driven online commerce growth 7
Online commerce is a €1 trillion global market, a huge payments opportunity 7
The US is the largest global online commerce market, with transaction values of €195 billion in 2009 7
Consumers in Sweden have the highest level of online purchasing per head 9
Sweden also sees the highest average spend per online shopper 11
Airline tickets and hotels account for the greatest share of transaction values 12
The majority of online commerce is accounted for by just 20% of consumers 14
Growth in internet penetration has been an important contributor to the expansion in online commerce 16
Online commerce has increased in popularity among both consumers and merchants 18
The popularity of online commerce is clear-24% of global consumers have shopped online at least once 18
Almost all consumers with internet access buy online, with 84% doing this at least once 19
Across Europe, 32% of consumers have made an online purchase in the last year 20
Merchants are making greater use of the internet as a sales and marketing channel 24
Payment cards dominate the space, but dedicated online payment tools are a major threat 26
Payment cards account for close to two thirds of all online payments by value 26
Japan is the largest online credit card market, with €120 billion of transactions in 2009 28
Prepaid cards are also important in online commerce, accounting for 2.4% of the global total 29
Significantly, the heaviest online shoppers are the most likely to use credit cards 30
Addressing security is key from the industry perspective, but consumers want convenience 32
Fraud is the single biggest issue in the online space, from both the consumer and industry perspective 32
On the consumer side, fear of being defrauded is also the biggest barrier to online commerce 33
Security is the most important issue in China, while the retail experience is of greater concern in Russia 35
Despite the importance of security, addressing the retail experience is a larger market opportunity than fraud 36
Convenience, not security, is the primary driver of online payment tool choice 37
Repeating this analysis with convenience in place of security shows a far stronger correlation 38
Indeed, analysis of PayPal suggests several other factors besides security are important choice drivers 40
Looking to the future, the payment card must evolve if it is to remain important in this space 42
The strength of non-card payments in online commerce is a significant future challenge 42
Future growth in online will require a clearer focus on the different sub-markets in this space 43
Capturing a slice of the emerging micropayments market is a key current challenge 44
Facilitating card-to-card P2P payments offers the potential to grow in the online space 45
The issue of payment security is the dominant one from the card issuer and consumer perspective 46
Despite consumers focusing on convenience, the payment industry must not stop talking about security 46
Improvements to 3D Secure are overdue but current developments may well bring benefits 47
Visa's OTP solution would require hardware upgrades but could have wider applications 47
MasterCard's OTN solution requires no change to the card but offers less functionality 48
Ultimately, the need to address fraud may lead to more bank transfer-based online payment services 48
Appendix 50
Supplementary data 50
Data relating to graphics in this report not available in the accompanying Excel model 50
Definitions 57
Card-not-present (CNP) fraud 57
Charge card 57
Credit card (revolving) 58
Credit transfer 58
Debit card 58
Immediate debit 58
Deferred debit 58
Online payments 58
P2P (person-to-person) payments 58
Prepaid card 58
Methodology 59
Further reading 60
Ask the analyst 60
Datamonitor consulting 60
Disclaimer 61
List of Tables
Table 1: Absolute online transaction values and online as a share of total retail sales, 2009 50
Table 2: Proportion of consumers with access to the internet, 2000-08 51
Table 3: Number of and proportion of consumers that have shopped online at least once, 2009 51
Table 4: Proportion of internet users that have shopped online at least once, 2009 52
Table 5: Proportion of consumers in the EU-27 countries that have shopped online in the previous three and 12 months, 2004-08 52
Table 6: Proportion of consumers in the EU-27 countries that have shopped online at least once in the last three months, 2008 53
Table 7: Proportion of consumers in the EU-27 countries that have bought a good or service online in the previous 12 months by type of purchase, 2004-08 54
Table 8: Proportion of consumers in the EU-27 countries that generate more than 1% of their annual sales through the internet, 2008 55
Table 9: Reasons given by consumers that have never shopped online, 2009 56
Table 10: Potential increase in online commerce from addressing consumer concerns over the retail experience or payment security, 2009 57
List of Figures
Figure 1: The global online commerce market will hit €1.09 trillion by the end of 2009 8
Figure 2: Online commerce accounts around 5.9% of total global retailing, 2009 9
Figure 3: On a per adult basis, Sweden sees the highest level of online spending per adult, 2009 10
Figure 4: The low percentage of online shoppers in China and India suggests strong future growth potential, 2009 11
Figure 5: Analysis of average spend levels per online shopper sees Sweden and Italy lead the way, 2009 12
Figure 6: Airlines tickets and hotels are the largest online segment, accounting for 39.8% of all online transaction values, 2009 13
Figure 7: The share of airlines and hotels within total online commerce ranges from 23% in China to 61% in Singapore, 2009 14
Figure 8: The top 20% most active consumers account for 80% of total online commerce transaction values globally, 2009 15
Figure 9: Internet penetration has shown consistent growth over the period 2000-08 16
Figure 10: Internet penetration is highest in North America but the majority of internet users are in Asia, 2008 17
Figure 11: One in four consumers globally has bought a good or service online at least once, 2009 19
Figure 12: Among those with internet access the proportion is far higher; 84% of all internet users have bought a good or service online, 2009 20
Figure 13: The proportion of consumers in the EU-27 that have bought online continues to rise, reaching 32% in 2008 21
Figure 14: There is a high degree of variance across the EU-27 in terms of online shopping, suggesting huge future potential growth across many Eastern European markets, along with Italy and Spain, 2008 22
Figure 15: Across the EU-27, clothing and sports goods are the most popular categories for online commerce, with 13% of consumers having bought in this category at least once in the previous year, 2004-08 23
Figure 16: The proportion of businesses that trade online varies considerably across the EU-27, but is nevertheless in line with online shopping patterns, 2008 25
Figure 17: Credit cards are the leading online payment tool, accounting for 45.3% of global online commerce transaction values in 2009 27
Figure 18: The share of credit cards in online commerce ranges from 21% in Russia to 66% in Japan, 2009 28
Figure 19: Japan is the largest market for credit card use online, while the US is the largest market for the use of credit and debit cards, 2009 29
Figure 20: Italy sees the highest value of prepaid card transactions in online commerce, ahead of India, 2009 30
Figure 21: The most active online shoppers make the greatest use of credit cards for their payments, 2009 31
Figure 22: UK CNP fraud losses have more than doubled between 2004 and 2008 33
Figure 23: Concern about fraud is the single biggest reason preventing consumers from shopping online, although dislike of the online retail experience is almost as important a factor, 2009 34
Figure 24: Consumers in China are most concerned about the security of payments and delivery of online goods, while those in Russia are more affected by the quality of the retail experience, 2009 35
Figure 25: Addressing concerns about the retail experience would create an additional market opportunity five times greater than addressing concerns about fraud 37
Figure 26: Despite being rated as the least secure form of payment tool online, credit cards account for the greatest share of the market, suggesting a possible negative correlation between factors, 2009 38
Figure 27: The correlation between convenience and payment tool choice is overwhelmingly positive, 2009 39
Figure 28: No payment tool is rated by consumers as offering a blend of high convenience and also a high degree of security, 2009 40
Figure 29: Rewards and financing are key factors behind the use of credit cards online, whereas merchant acceptance is very important for PayPal, 2009 41
Figure 30: The breakdown of non-card online payments varies across each country but is nevertheless a significant proportion, 2009 43
Figure 31: Payment cards are strong in the area of 'traditional' good and service retailing online but fall short in the areas of micropayment and P2P settlements 44

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List of Tables
Table 1: Absolute online transaction values and online as a share of total retail sales, 2009 50
Table 2: Proportion of consumers with access to the internet, 2000-08 51
Table 3: Number of and proportion of consumers that have shopped online at least once, 2009 51
Table 4: Proportion of internet users that have shopped online at least once, 2009 52
Table 5: Proportion of consumers in the EU-27 countries that have shopped online in the previous three and 12 months, 2004-08 52
Table 6: Proportion of consumers in the EU-27 countries that have shopped online at least once in the last three months, 2008 53
Table 7: Proportion of consumers in the EU-27 countries that have bought a good or service online in the previous 12 months by type of purchase, 2004-08 54
Table 8: Proportion of consumers in the EU-27 countries that generate more than 1% of their annual sales through the internet, 2008 55
Table 9: Reasons given by consumers that have never shopped online, 2009 56
Table 10: Potential increase in online commerce from addressing consumer concerns over the retail experience or payment security, 2009 57

List of Figures
Figure 1: The global online commerce market will hit €1.09 trillion by the end of 2009 8
Figure 2: Online commerce accounts around 5.9% of total global retailing, 2009 9
Figure 3: On a per adult basis, Sweden sees the highest level of online spending per adult, 2009 10
Figure 4: The low percentage of online shoppers in China and India suggests strong future growth potential, 2009 11
Figure 5: Analysis of average spend levels per online shopper sees Sweden and Italy lead the way, 2009 12
Figure 6: Airlines tickets and hotels are the largest online segment, accounting for 39.8% of all online transaction values, 2009 13
Figure 7: The share of airlines and hotels within total online commerce ranges from 23% in China to 61% in Singapore, 2009 14
Figure 8: The top 20% most active consumers account for 80% of total online commerce transaction values globally, 2009 15
Figure 9: Internet penetration has shown consistent growth over the period 2000-08 16
Figure 10: Internet penetration is highest in North America but the majority of internet users are in Asia, 2008 17
Figure 11: One in four consumers globally has bought a good or service online at least once, 2009 19
Figure 12: Among those with internet access the proportion is far higher; 84% of all internet users have bought a good or service online, 2009 20
Figure 13: The proportion of consumers in the EU-27 that have bought online continues to rise, reaching 32% in 2008 21
Figure 14: There is a high degree of variance across the EU-27 in terms of online shopping, suggesting huge future potential growth across many Eastern European markets, along with Italy and Spain, 2008 22
Figure 15: Across the EU-27, clothing and sports goods are the most popular categories for online commerce, with 13% of consumers having bought in this category at least once in the previous year, 2004-08 23
Figure 16: The proportion of businesses that trade online varies considerably across the EU-27, but is nevertheless in line with online shopping patterns, 2008 25
Figure 17: Credit cards are the leading online payment tool, accounting for 45.3% of global online commerce transaction values in 2009 27
Figure 18: The share of credit cards in online commerce ranges from 21% in Russia to 66% in Japan, 2009 28
Figure 19: Japan is the largest market for credit card use online, while the US is the largest market for the use of credit and debit cards, 2009 29
Figure 20: Italy sees the highest value of prepaid card transactions in online commerce, ahead of India, 2009 30
Figure 21: The most active online shoppers make the greatest use of credit cards for their payments, 2009 31
Figure 22: UK CNP fraud losses have more than doubled between 2004 and 2008 33
Figure 23: Concern about fraud is the single biggest reason preventing consumers from shopping online, although dislike of the online retail experience is almost as important a factor, 2009 34
Figure 24: Consumers in China are most concerned about the security of payments and delivery of online goods, while those in Russia are more affected by the quality of the retail experience, 2009 35
Figure 25: Addressing concerns about the retail experience would create an additional market opportunity five times greater than addressing concerns about fraud 37
Figure 26: Despite being rated as the least secure form of payment tool online, credit cards account for the greatest share of the market, suggesting a possible negative correlation between factors, 2009 38
Figure 27: The correlation between convenience and payment tool choice is overwhelmingly positive, 2009 39
Figure 28: No payment tool is rated by consumers as offering a blend of high convenience and also a high degree of security, 2009 40
Figure 29: Rewards and financing are key factors behind the use of credit cards online, whereas merchant acceptance is very important for PayPal, 2009 41
Figure 30: The breakdown of non-card online payments varies across each country but is nevertheless a significant proportion, 2009 43
Figure 31: Payment cards are strong in the area of 'traditional' good and service retailing online but fall short in the areas of micropayment and P2P settlements 44
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