Debit and credit card issuers and acquirers in the UK stand to lose up to 30% of transactions to online retailers offering PayPal and Google Checkout as Internet sales take-off, according to a study by consultancy Booz Allen Hamilton.
The volume of online card payments in the UK has increased five-fold over the last five years, notes the study, reaching 310 million transactions in 2005 for a total of £22bn and accounting for five per cent of all personal card payments.
The UK is currently the e-commerce leader in Europe, with 28 million customers using plastic cards to buy online. The consultancy estimates that UK shoppers will spend on average £1000 online totalling £26 billion in 2006.
Booz Allen says the default payment mechanisms such as credit cards and bank transfers, which currently make up 90% of all consumer transactions, will become increasingly threatened by e-payment services such as those offered by Google and PayPal.
If existing providers - predominantly the card issuers and acquirers - do not find an effective counter strategy they could lose 10-20% of transactions by 2008 and in the long term up to 30%.
Booz Allen, says the development of the e-payment market will be driven by the big players, PayPal and Google, who will succeed in getting sufficient critical mass to be attractive to retailers.
Paypal has gained more than a hundred million customers since its launch in 1999 and handles more than $17bn annually. Booz Allen predicts that Google's new Checkout service will take even less time to establish itself as a major player.
For the new online payment systems to gain acceptance by retailers they will need to have an attractive pricing policy. Nicolas Reuttner, Booz Allen principal, says: "E-payment service providers will have to get exclusive partnerships and services in place, to ensure that online retailers are not able to disintermediate them in the long term, for example by offering their own solutions, or pushing credit cards to lower their charges to meet the new market prices."
The report says security continues to be a key concern, with 20% of consumers in 2005 deterred from shopping online for security reasons. But secure e-payment systems mean that consumers don't need to share credit card details with merchants.