Internet commerce will become a $7.3 billion business by 2000, and credit cards will continue to be the payment instrument of choice for items over $10, according to a new study by Jupiter Communications.
The New York-based electronic commerce consultancy has high hopes for smart cards, predicting that they will make dramatic inroads this year and will account for 26% of on-line transactions by 2000.
"It really seems like there's this kind of gang-up behind credit cards first, smart cards second," said Scott Smith, group director of the digital commerce group at Jupiter and chief author of the report.
Jupiter also predicts that digital cash and checks will gain steady acceptance. In the realm of microtransactions-on-line purchases of items that cost less than $10-the company believes that electronic coins and checks will be used for 40% of Internet purchases by 2000.
Today, credit cards account for more than 90% of on-line consumer payments.
"For now, to the extent that they buy items on-line, consumers are comfortable with using plastic," Mr. Smith said.
"But as new kinds of plastic emerge, like smart cards, and new types of pay-per-use services are created for the Internet, consumer behavior will change."
According to Jupiter's Internet Payments Report, the average number of transactions per on-line household will climb from today's rate of nine per year to 120 per year by 2000, as more low-value goods and services become available through the World Wide Web.
New on-line payment mechanisms are being introduced constantly by a variety of companies large and small. Jupiter predicts that existing companies like Visa, MasterCard, and American Express will ultimately be the ones to profit most from electronic commerce.
Several technology companies have entered the Internet payments fray with hopes of gaining market share as electronic commerce takes off. These companies include Cybercash Inc., Digicash Inc., First Virtual Holdings Inc., and GC Tech Inc.
Jupiter predicts that these companies, all of which except Digicash have formed within the last four years, will have niches in the market but will not dominate.
In particular, as consumers grow more comfortable with microtransactions-buying software on-line, playing video games, or purchasing individual news articles or stock quotations-the market for these smaller players will flourish, the Jupiter report states.
"The report underscores the importance that the under $10 segment will play in the on-line realm," said Nicole Vanderbilt, a senior analyst at Jupiter. "With growing E-cash technologies, that will really become a strong force for everything from pay-per-view or pay-per-use of content to pay-per-play of games."
The report also comes out strongly in favor of the adoption of smart cards, predicting that 1997 will usher in their rapid acceptance and that 1998 will see them emerge as the secondary method of making payments on- line.
"Smart cards have already been making a pretty good showing internationally," Ms. Vanderbilt said. "In the United States, the smart card market is really starting to roll with the formation of Mondex USA and the really strong players that are a part of that consortium."
