Cyber Monday: Javelin Forecasts an Online Payments Shift to Credit Cards at the Expense of Debit Cards

Nov 27, 2011

Cyber Monday: Javelin Forecasts an Online Payments Shift to Credit Cards at the Expense of Debit Cards

San Francisco, CA, November 28, 2011 – Javelin Strategy & Research’s latest Online Retail Payments Forecast report identifies a significant shift in the balance between credit and debit use for online purchases. With changing market conditions and new regulations causing credit cards to regain transaction share, credit cards are increasing their share of the consumer’s wallet for online purchases. The study shows a robust 16% increase in the U.S. online market as retail e-commerce sales continue to rise to $309 billion in 2011 and are further forecast to climb to an estimated $444 billion by 2016.

“After several years of declining use, credit cards are poised for resurgence,” said Beth Robertson, Director of Payments Research at Javelin. “Despite the nation’s very rocky economic recovery, consumers appear to have halted their belt-tightening and bank incentives to use credit cards rather than debit are gaining appeal.” In the five-year period from 2011 to 2016, assuming that the Durbin Amendment regulating debit card interchange stands, Javelin projects that total payments volume (TPV) for the online use of credit cards by U.S. consumers will climb 63%, while the TPV for debit cards is expected to rise just 2% during that same period.

Javelin’s 4th Annual Online Retail Payments Forecast 2011-2016: New Regulations Leave Credit Poised for a Comeback states online merchants have much to gain from this shift in payments share. Credit cards typically generate higher consumer spending and greater revenue for merchants. However, this change in behavior should also make consumers more conscientious about their online spending. Frenzied purchasing periods such as Cyber Monday can cause consumers to throw cautionary spending patterns to the wind and take advantage of the “deal” phenomenon. Javelin’s study shows that consumers spend more money on a single online transaction using credit cards than when using other payment options, spending an average $82.10 with a major credit card versus $58.29 using a major debit card. Consumers also need to be especially careful during this holiday season too. As credit card fraud rates are higher than debit card fraud rates, consumers should set alerts and monitor their accounts carefully during this holiday period.

Javelin’s 4th Annual Online Retail Payments Forecast, based on data collected online from more than 2,300 consumers, details why consumers will be reaching more for their credit cards this holiday season and over the next five years. The report also 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 will also see growth as alternative payments make inroads on traditional payments share,” claims James Van Dyke, Founder and President of Javelin. “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.” 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 just two percentage points below debit’s projected share.

Related Javelin Research:

2011 Online Retail Payments Scorecard: New Options to Maximize Online Shopping Revenue

Evolving Rewards Strategies: How Merchant-Funded Programs Will Usher in a New Era of Loyalty for FIs

Retailers Launch the Holiday Shopping Season Early – But Is That Enough?

About Javelin Strategy & Research:

Javelin Strategy & Research is the leading provider of quantitative and qualitative research focused on the global financial services industry. Our extensive quantitative data and deep analyst experience enable us to forecast the direction of the financial services market and make recommendations that empower you and your business to succeed.

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