Posted by Edward Kountz on February 1, 2009
[Posted by Ed Kountz]
While all good things eventually come to an end, so too do endings lead to new beginnings.
It's in that spirit that I want to welcome regular readers to my new, role-based blog within Forrester. It's good to be back, and thanks to all of you who have reached out since the migration to the new platform.
The location of my blog may have changed, but the global financial crisis continues:
--Wall Street just finished its worst January ever;
--More than 100,000 job losses were announced last week alone;
--And the week to come is worth watching, with a variety of economic reports (including consumer spending, retail sales, housing and the January employment report) all in the wings.
In that light, it's appropriate that my first report of 2009 will be part of the FORR 2009 e-Business Financial Services e-Business Trends series. That report--"Trends 2009: US Online Retail Payments--Adapting to a New Spending Order"-- analyzes the factors driving this crisis, as well as the impact on consumers' multi-channel shopping and payments habits, with a particularly emphasis on online. We believe--and our survey data suggests--that payment habits will shift in some interesting ways as a result.
Beyond the impact of the recession and rising unemployment, the deleveraging from credit has increased the number of US online users turning to credit cards less, and debit-based or cash options more frequently. That number's up substantially in recent months. And while the Internet is buffering things for e-merchants--no channel has been spared, but e-Business looks somewhat stronger by comparison, and is becoming consumers' default research channel choice in tight economic times--choice proliferation and generational habit shift have already set the stage for a showdown. Plastic no longer refers just to credit, just as payments no longer are just paper. What's more, the available choices continue to grow--and will, as long as the VC funding holds out. (Look for at least two new online payment options to launch in the weeks to come).
Forrester expects this change to have several ramifications on e-Business and Channel Strategy professionals. Among these:
--A new order for credit. While still the top driver of online spend (in overall transaction value), credit cards are seeing a multi-year ceding of market share to debit and other alternatives. Forrester data suggests this process will accelerate, given tight credit access and the global deleveraging from credit that is now underway.
--Once bitten, consumers are migrating in large numbers to non-credit options. Prospecting, servicing and issuing standards will all be impacted as a result. And as consumers migrate to debit and other alternatives, it becomes important for e-Business managers to leverage payments at a more strategic marketing level, seeking to deepen relationships and enhance spend with transactions consumers are still making. The expanding number of payment options can assist, but is also a double-edged sword--those that are not able to thrive (in terms of networking broadly enough into consumer use and merchant acceptance) will be a drag for merchants, and will eventually consolidate or die.
--The likelihood of greater regulation. In 2008, the structure of the consumer payments industry was again in the spotlight. The Credit Card Fair Fee Act stalled in the US House of Representatives, but should in some version again see the light of day now that Congress is back in session. The Federal Reserve's industry rules, passed in December, seek to alter some of the long-held industry practices, in particular ones that have helped industry leaders offset the rise of fee-free and rewards cards. There may not be such a thing as a free lunch, but any changes to the current structure could add another element of discord to the consumer payments experience. Informed consumers will be ready for this, but for most, any changes to the benefits side of the equation will be a surprise. Issuers must be prepared, deepening relationships via cost effective means as a way of aligning (as best as possible) with consumers' values and needs.
There's more, of course. The changes we're seeing may not be the proverbial tsunami (as others have said), but will clearly bring significant changes to long-standing consumer habits, issuer beliefs and merchant relationships. Look for my report on the topic--"Trends 2009: US Online Retail Payments--Adapting to a New Spending Order"--over the next couple of weeks.
And let me know what you think of this analysis—email me with comments at email@example.com.