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Innovations and Payment Systems

Credit cards projected to share online payment spotlight

Summary

Retailers are gradually moving from online credit card payments to alternative payment methods that cost less.

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Currently, most online shoppers are likely to have their credit card at the ready when they plan to make a purchase. But some analysts do not expect the credit card’s online heyday to last. While credit cards made up over 90 percent of online payment volume in 2000, they will account for less than half by 2009, based on a May 2006 study by Celent LLC.

Experts say that a gradual move away from online credit card payments is based on the fact that alternative payment options are generally cheaper for retailers, with Celent analysts noting that credit cards are just too costly for e-tailers to remain so dominant. Also, some online merchants worry about the risks involved in a transaction where the payment card is not physically present. Celent adds that many consumers are afraid to make payments online for fear their credit card or other personal information could get mishandled.

Among the alternative online payment choices gaining popularity, eBay’s PayPal is a low-cost method that does that does not force consumers to enter any personal information. Meanwhile, Bill Me Later offers consumers the ability to make payments on items later or in installments. And, there are a number of other online payment solutions on the rise.

Google Checkout was introduced by Google in summer 2006 as a competitor to PayPal. Google Checkout is designed to act like an electronic wallet that allows consumers to shop for products and services without having to enter the same personal and credit card data with every merchant by letting consumers shop using a single account and password. Google account users input their credit card data, billing address and phone number, and Google will deliver the payments to any participating seller, which must advertise on the search engine to take part.

Meanwhile, PIN debit is just beginning to appear on the Internet, and allows consumers to use a PIN number to make sure debit purchases online. However, a debit card is not the only thing consumers will need — a terminal is also required in order to swipe their debit card from home. The terminal allows shoppers to swipe a debit card as they would at an ATM, gas station or grocery store but in the safety and convenience of their home, or anywhere they have a computer.

Separately, ACH Consumer Push is predicted to launch in late 2007. This initiative from the Electronic Payments Association, or NACHA, will offer Automated Clearing House-based e-commerce transactions including the security of authentication by consumers’ online banks, including Bank of America. When shoppers are checking out at a merchant site, they log in to their online bank to authenticate themselves. The transaction is then secured by this authentication.

Regardless of the growth in alternative payment options, credit cards will continue to be the safest option for e-commerce, say most experts.  This is because of online fraud protection and zero liability policies offered by major card issuers that are not present with many other payment processes.

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Published: November 21, 2006

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