While e-commerce volume has fallen well short of meeting predictions of becoming a $100 billion market by 2001, the good news is that volume is still growing at a rapid clip. E-commerce volume hit an estimated $50 billion in 2002, a 38% increase from 2001, according to Internet Retailer magazine.
More encouraging for processors and merchant acquirers is that e-commerce transactions account for about 4% of total general-purpose credit card volume, according to TowerGroup, a Needham, Mass.-based research firm. That percentage may grow to about 10%.
One niche garnering a lot of attention as e-commerce grows is digital content, which merchants can sell for less than $5 per transaction. Processors have struggled to find a way to make micropayments profitable, but the real hold-up is the lack of copyright laws in this area to protect against piracy and ensure royalties are paid on all copies distributed.
"There is a lot of opportunity in this market segment, but the rights issues need to work for content providers, merchants and consumers, not just one of these groups," says David Schehr, a research director for GartnerG2, a business-strategy unit of Gartner Inc. "If the rules are too restrictive, consumers won't make use of it, and if they are too loose there will be copyright problems. It's a balancing act."
On the servicing side, Internet merchants are increasingly offering incentives to shop at their sites, such as 10% off the first purchase or free shipping on purchases over a specified amount. "I know of merchants that are offering a $5 coupon to customers for referring a new customer," says Julie Fergerson, vice president for Austin, Texas-based ClearCommerce Corp. "A lot these types of offers are being sent via e-mail, which is a low-cost marketing channel."
Even if these efforts do not generate significant card volume, they can only enhance a steadily growing market. E-commerce may not yet be the brass ring acquirers once thought, but it ain't hay either.
Authoritative analysis and perspective for every segment of the payments industry
Authoritative analysis and perspective for every segment of the industry
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