Credit cards remain the preferred payment method for online purchases in the United Kingdom because of their payment protections and potential for users to earn reward points. But other payment methods continue to attract consumer interest as well.

Indeed, strong competition from debit cards, online processors such as PayPal Inc. and the pending emergence of Google Inc.’s digital wallet is changing the UK’s ecommerce landscape, the results of a new card industry survey suggest.

Consumers complete 49% of their online payments with a credit card, according to an online survey of 503 adult credit cardholders Auriemma Consulting Group conducted during the third quarter last year. Respondents indicated they make 28% of their online payments with debit cards, while they use PayPal to initiate 20% of their payments, according to Auriemma’s Jan. 12 Cardbeat report.

PayPal growing popularity illustrates the online payment processor’s intention to make a dent in credit card use, the report authors claim.

“PayPal’s strong market share within the online-payment space was surprising and poses a huge threat to credit cards, given its vintage as a payment method within the UK,” Jackie Van Pelt, a London-based managing associate for Auriemma, tells PaymentsSource. Van Pelt co-authored the report with Mark Jackson, London-based Auriemma director.

Because of PayPal’s growing popularity, credit card issuers also must focus on increasing credit card use within the PayPal payments accounts, which PayPal users primarily fund through debit accounts, Auriemma contends.

“Our belief is that issuers will need to consider developing specific strategies to both compete with PayPal as a payment method and also to create incentives for customers to increase their usage of credit cards for online purchases,” Van Pelt suggests. “These strategies will be crucial for issuers to grow and maintain market share over the upcoming years within the online payments space.”

Respondents continue to view credit cards as the most secure payment method, based on money-back purchase protection not common on debit cards or online payment methods, Van Pelt notes.

Thirty-six percent of respondents cited online security as their main reason for using credit cards, while 33% indicated they used the cards to earn reward points, the report states.

Credit card issuers must continue to provide incentives and rewards for consumers to remain competitive in ecommerce, Van Pelt says.

The report authors note the UK has only two types of credit card online bonus rewards programs–Nationwide’s Simply Rewards/My Visa Offers, which offers discounts for shopping at participating online retailers, and Barclaycard’s eStore, which offers bonus rewards at specific retailers.

Both of those rewards programs offer additional value to consumers, but they require the customer to remember to visit an online site to earn bonus rewards or receive discounts, Van Pelt surmises.

“We have yet to see a rewards card that tailors rewards earning or programs strictly for online purchases,” she says. “This is an area of opportunity within the UK marketplace and aligns with the movement toward online purchases.”

Online purchases were more common with younger respondents, as 84% younger than 45 made an online purchase at least monthly compared with 63% of those 45 and older, the report states.

Card issuers must continue promotions and marketing that would move their products to “top of the wallet” in the mind of consumers, as 67% of respondents indicated they use their “most frequently used card” for online purchases, the survey data show.

The Google Wallet’s expected launch in the UK to coincide with the 2012 Summer Olympics in London looms as another potential threat to credit card use for online purchases because it is designed to reduce the steps needed in the online checkout process, the survey notes.

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