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Friday September 12th 2008

Comment: How can internet banking generate new business for online retailers?

Archived article dated Friday September 12th 2008

Internet shopping in the UK is growing and, despite the credit crunch, remains strong. 25 million consumers now purchase goods and services online.

By Charles Bennett

UK sales in the first half of 2008 were £26.5 billion, up 38% on the same period in 2007. IMRG and Capgemini predict that between 30% and 50% of all retail spending will be online in the next five years.

But there is still reluctance amongst some consumers to shop using the internet because of concern about providing payment card details to retailers online. This has been highlighted by the growth of alternative payment methods, such as PayPal and GoogleCheckout. In 2007, Javelin Research stated that alternative payment methods will 'increase to gain 30% of all online transaction volume by 2012, up from 14% in 2007.'

There is high consumer demand for easier, private and more secure online payment methods. This is in part illustrated by the significant rise of internet banking. Over half of all internet users now bank online. Recent figures released by APACS, the UK payments association, show that the number of adults using internet banking in the UK has increased more than five times in the past seven years to just over 21 million last year. Online banking offers a safe and secure way for consumers to access their bank account and, in the future, APACS expects more and more people to use it to make payments rather than just checking balances.

So perhaps what is needed to alleviate the fear of using payment cards online, and broaden the appeal of internet shopping, is an alternative payment mechanism that is linked to online banking. 'Online Payment' schemes have already been implemented successfully in a number of other countries, including The Netherlands, Germany, Norway, Denmark, and the USA. Evidence suggests that these online schemes have helped to grow the internet shopping market by increasing the number of consumers prepared to shop online, in some cases by more than 20%.

The attraction of Online Payments is that it allows internet shoppers to make the necessary payment directly from their own secure internet bank account. This offers the consumer the familiarity and ease-of-use of their internet banking login procedure. A link from the retailer's website takes the buyer directly to their online bank's login page, so they don't have to register or remember new passwords. It also means that there is no need to disclose payment card details online, so these would not be stored or seen by the merchant and couldn't be monitored either. The scheme builds on the trust that the consumer has in their bank and its associated security, providing greater confidence in shopping online by giving the customer full control of the payment process. For the retailer, it offers the security of a guaranteed payment and enables them to access funds immediately. Online Payment services overseas have also seen a reduction in the number of checkout abandonments.

But the real benefit for internet retailers, as shown by the schemes in operation abroad, is that Online Payments can generate new business for them. Consumers that are happy to use internet banking but are reluctant to use a payment card online are more likely to shop if they can use their internet bank login to make a purchase. A recent VocaLink survey showed that 51% of consumers view security as the primary concern when choosing which payment method to use online and that over two-thirds would use internet banking to pay for goods/services online instead of their existing payment method. “I like the idea of not having to share my account details and also the ability to stay in control of my spending,” one respondent stated.

Online Payments schemes are already a great success outside the UK and are capable of providing the same benefits here. As internet shopping continues to grow customers will be looking for a simple, secure and convenient means of paying for goods and services online. Retailers will be looking to capitalise on the boom in online shopping.

Charles Bennett is Commercial Development Director at VocaLink

Tagged as: online payments | vocalink

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