On-line purchases will soar to $16 billion in the United States and Europe in 2002, fueled by Internet-based card transactions, the Datamonitor research firm estimated.
Last year's total was between $300 million and $500 million, London- based Datamonitor estimated. In a report based on interviews with 120 executives at technology companies, retailers, and financial institutions, the firm predicted that in five years 85% of U.S. and 81% of European Internet purchases would entail use of credit or debit cards. On-line purchases from the United States would be worth about $12.5 billion; those from Europe would be valued at $3.5 billion.
The estimates are considered conservative. Two other research companies, Jupiter Communications of New York and Forrester Research of Cambridge, Mass., have projected that electronic commerce in the United States would be worth $37.5 billion and $66.5 billion, respectively, by 2002.
Though nascent, the market for electronic payments already has "consolidated into three segments: micropayments, electronic cash/small payments, and on-line credit card payments," said Geoffrey S. Doggart, senior business analyst at Datamonitor's London office. All three segments are likely to grow, but card-based transactions will grow the fastest, he said.
The launching of the Visa and MasterCard-supported Secure Electronic Transaction, or SET, protocol this year will play an important role in generating transaction card-based volume in Europe, said Mr. Doggart.
European banks "haven't felt all that confident with SSL," the Secure Sockets Layer encryption protocol currently supported by major software Web browsers, Mr. Doggart said. SSL lacks the authentication capabilities of SET, he noted.
Because of the rising support for SET and the near ubiquity of credit and debit cards, Datamonitor predicts that card-based transactions will dwarf those of other payments mechanisms.
However, micropayment systems are expected to grow as well.
Improvements in the speed of Internet communications are creating a larger market for "virtual" products, such as on-line magazines and software.
Datamonitor forecasts that by 2002, small payments will account for up to 12% of on-line transactions in the United States and 10% in Europe. Smart cards will account for 2% of U.S.-based transactions and 8% of those from Europe. Both regions can expect electronic cash products to account for less than 1% of the market.
The differences between the two regions are attributable in part to Europe's embracing of the smart card. About 70% of all smart cards in use are in European countries, Datamonitor said.
"Although it is America that is providing technology for payments over the Internet, it is European technology that is bridging the gap between the Internet and smart cards," Mr. Doggart said.