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Alternative-payment providers such as PayPal Inc. and Amazon Payments continue to pose a threat to traditional payment methods, according to a study by Boston-based financial research and consulting firm Celent LLC. Though payment cards dominate the $170 billion e-commerce market, buyers use alternative-payment methods for approximately 15% of that volume, according to the report. Card issuers will continue to lose interchange revenue, as alternative payments show no signs of losing market momentum. Celent estimates card brands and issuers stand to forgo $345 million in volume in 2010 and about $1.7 billion in 2015. Alternative-payment methods offer consumers and merchants some advantages over payments cards, according to the report. Personal data security, online-shopping convenience and merchant pricing are significant improvements over payment cards, according to the report. "Consumers share information with far fewer players (when using alternative payments)," report author and Celent senior analyst Red Gillen tells CardLine. "You share your potential information with PayPal and not all the merchants you shop with." Besides these advantages, companies that support alternative-payment methods are giving consumers reasons to want to use their services. For example, they alert consumers they can use PayPal or Google Checkout as their preferred choice to purchase a product. Alternative-payments companies also offer discounts on purchases. And Bill Me Later, which eBay Inc. purchased on Monday (CardLine, 10/6), offers financing terms for certain items. Card brands and card issuers can slow the closing of gap between themselves and alternative-payment methods by working with the companies that accept payment cards as the source of funds, such as Google Checkout, Gillen says. PayPal accepts cards as the source of funds, but it also enables consumers to debit a purchase from a bank account.

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