Although the $239 billion in current credit card e-commerce transactions will grow to $340.9 billion by 2009, a recent Celent report on the online payments arena suggests this will still represent a precipitous decline.
The 86 percent market share of credit/signature debit cards in online payments will fall below 50 percent in just three years, due to the strident growth in alternative payment services like eBay's PayPal and newly unveiled e-wallet rival, Google Checkout. The looming e-payments battle between the two giants is frequently positioned as to how these two will divide the spoils of the card issuers' loss and how their alliance and bundling strategies will partition the market, such as when eBay immediately booted Google Checkout from its accepted payor list.
But alternative online payments are more than a two-horse showdown. There are plenty of other candidates and strategies waiting to make a significant market dent in the space, including those who aren't looking to disintermediate banks. "PayPal will dominate the space," says Celent retail banking senior analyst Dan Schatt, "but increasingly we're going to see PIN debit crop up, we're going to have new forms of ACH crop up and we're going to see alternative forms of credit that rely on technology providers that may still have relationships with banks, but are playing a primary role in interfacing with the consumer."
These newer solutions-like Bill Me Later's transferable online merchant credit service and NACHA's ACH Consumer Push pilot-are attractive to Web retailers who no longer want the interchange costs and risks of cards in a card-not-present environment (consider the 2005 card-fraud expense tally for online merchants: $1 billion). "The cost of maintaining the status quo is very, very high," says Schatt.
PayPal is well positioned with bundled merchant services and various partner programs, such as Yahoo! Web hosting or online storefront services from eBay, to move its 10 percent market share to 15 percent, Schatt says. But Google spawned PayPal's nightmare scenario in unveiling its own payments option that can tie into Google's e-commerce advantages: online advertising and search. Since two-thirds of transactions originate through search, packaging paid search, advertising and payments "could result in a lower-cost e-commerce channel proposition for online merchants," according to Schatt. Citigroup Global Markets Internet analyst Mark Mahaney downgraded eBay's stock following Google's announcement-as well as the surprising resignation news from PayPal president Jeff Jordan, noting Google's lower fees and speed-of-checkout "leapfrogged" PayPal.
PayPal, though, still has the advantage of being fundable through ACH, credit/debit signature cards and PayPal credit. Google only facilitates cards, but is expected to adopt ACH. PayPal is also more widely accepted, boosted last year in its acquisition of Verisign's payments gateway business to give it 100,000 additional merchants.
But Schatt says other ACH-capable options are setting anchor, such as PIN debit. Robert Ziegler, general manager of PayByTouch's ATM Direct division, says EFT players and other payment companies are lining up to grab a potential 15 percent share of the online payments space that Schatt believes in 2009 can produce up to $160 million in online payment revenues. ATM Direct, a processor through Fiserv's 15-million card Accel/Exchange EFT network, went live with its service this summer with its first retailer.
Metavante is strongly considering adapting its newly launched "Just Pay It" expedited service for a general PIN debit model through its NYCE network. "Our convenience payment really allows the billers to accept credit cards, debit cards, PIN-less debit, and electronic checks through ACH," says Frank D'Angelo, president and COO of Metavante's Payments Group. "To migrate that to a more flexible solution really isn't that far out of the realm."
NACHA's ACH Consumer Push pilot, which includes Bank of America, Wells Fargo and National City, is seen as a $100 million anecdote converging bank and merchant interests. In NACHA's model, customers link to their online bank from a merchant site link for authentication and payment. Banks get revenue, and retailers get business from customers who don't want their card data stored with a merchant. "What you're seeing out there are a lot of new types of payment or checkout processes that are not bank-oriented," says NACHA spokesman Michael Herd. "Here is a concept that is bank-oriented."
Some issues NACHA must work through, says Schatt, include too many cooks in the kitchen: originating and receiving banks, the gateway, and ACH providers could all want a cut. NACHA's good-funds payment model also have to justify an interchange structure which calculates fees to a percentage of sales, "since larger ticket items will be as safe to process as smaller ticket items," says Schatt.
