SAN FRANCISCO (11/30/11)--Changing market conditions and new regulations have led to credit cards regaining an increased share of consumers' wallets for online purchases, according to a new study from Javelin Strategy and Research.
In the five-year period from 2011 to 2016, assuming the Dodd-Frank Act's provision regulating debit card interchange stands, Javelin projects total payments volume for the online use of credit cards by U.S. consumers will climb 63%, while the total payments volume for debit cards is expected to rise 2% during that period.
The study indicates a 16% increase in the U.S. online market as retail e-commerce sales continue to rise to $309 billion in 2011 and are forecast to climb further to an estimated $444 billion by 2016.
The Federal Reserve's final interchange rule caps large issuer debit interchange fees at 21 cents, and allows an additional five basis points per transaction may be charged to cover fraud losses (News Now Sept. 14). An extra penny may be charged by financial institutions that are in compliance with Fed-established fraud prevention standards. Card issuers with less than $10 billion in assets--like most credit unions--are exempt from the fee cap. However, the routing and exclusivity rules apply to all debit card issuers regardless of asset size.
Online merchants have plenty to gain from this shift in payments share, according to "Javelin's Fourth Annual Online Retail Payments Forecast 2011-2016: New Regulations Leave Credit Poised for a Comeback." Credit cards typically generate higher consumer spending and greater revenue for merchants. Javelin's study shows that consumers spend more money on a single online transaction using credit cards than when using other payment options. They spend an average $82.10 with a major credit card versus $58.29 using a major debit card.
Javelin's study tracks the growth of online alternative payments methods, prepaid and gift cards for online purchases. The report identifies key drivers creating shifts in online payments' mix and explores the impact of these changes on consumers, payments providers and merchants.
Non-traditional payment methods also will grow in the next five years, according to James Van Dyke, founder and President of Javelin. With a projected $30 billion growth through 2016, online alternative payments will hold a 19% share of online retail payments or a share that is two percentage points below debit's projected share.
"While online alternative payments represent less than one-fifth of e-commerce transactions, these options are well-positioned to benefit from the introduction and adoption of emerging payment environments, such as the mobile channel and social networking," Van Dyke said.
The Credit Union National Association (CUNA) is monitoring merchants for any signs that they are steering consumers away from using debit cards issued by institutions that are not subject to the debit interchange cap, and has developed a website to help consumers and credit unions report any instances of steering. CUNA is also working with regulators to ensure the two-tiered interchange system is followed so the law doesn't produce unintended consequences for consumers and credit unions.