Consumers Distrust in Credit Cards and the Impact in Ecommerce

Do customers distrust credit cards?

With US ecommerce reaching $53.86 billion in the third quarter of 2014, it would be realistic to believe that consumers have warmed up to the idea of releasing their personal information when making purchases online. However, even with the increasing growth of ecommerce, three out of four online buyers feel as though their payment information is not secure. So what’s driving 63% of Generation Y to go without owning a credit card? Fraud, fear of debt and the rise of alternative payment methods are all contributors.

 

Fraud

 

Demographically, we can divide the majority of online shoppers today into two age categories; Generation X (born 1965 – 1979) and Millennials, or Generation Y (born 1980 – 2000). While the two generations have demonstrated a similar amount of distrust when it comes to ecommerce and online transactions, they have different rationales.

 

For the older generation, their skepticism stems from their fear of fraud. According to a study by Accenture, 34% of Generation X have changed the way they shop online after being victim of credit card fraud. This is in comparison to the mere 28% of Generation Y. From studies such as this we’ve been able to denote that while the older population utilizes their credit cards more often online, they are not as tolerant when it comes to trusting online payments.

 

On the flip side, 1/3 credit cards are wrongly declined during card not present purchases – or ecommerce transactions, with majority of those due to suspected fraud. While it is critical for merchants to protect both themselves and their customers from fraud, circumstances such as wrongly declined transactions leads to frustrated customers and significant revenue loss for the merchant. Moreover, credit card companies and the merchants are the first to be blamed when these incidences do occur- costing online retailers and their partners up to $40 billion annually.

 

Fear of Debt

 

Contrary to GenX, GenY has opted against using credit cards not due their lack of trust with releasing their personal information, but with debt associated by using the cards. Online shoppers ages 18 – 29 years old prefer to use debit over credit cards by a ratio of 3:1. A staggering 63% of this generation does not even own this type of plastic. Aside from the population’s preference against using credit cards, the CARD act of 2009 has also contributed to the decline in credit card usage. In recent years, the act has made it increasingly more difficult for people under 21 to obtain credit cards and for financial institutions to market to students.

 

Rise of Alternative Payment Methods

 

For a generation that has proven to be increasingly apprehensive about owning credit cards, GenY has shown continued interest in adapting alternative payment methods. Within the past year, 45% of these shoppers have supplemented traditional banking methods with alternative financial services or products. In fact, out of a survey in which 6,200 shopper were questioned, only 48.9% and 45.4% trusted PayPay and Amazon respectively. However, more than 50% of Generation Y trusted both payment options. This growth in popularity is largely associated with lower and more predictable fees found with alternative payment methods. In recent studies, these payment options have actually shown to be a better fit for the younger generation than the use of credit cards, with 42% of GenY stating these products as being more convenient for them.

 

Takeaways

 

It’s apparent that while for most people credit cards are essential for day-to-day activities, many have found ways to avert the use of these payment options. With the growth of alternative payment methods and increased security surrounding them, there has come a tendency for customers to move from their plastic purchases to other options that are less susceptible to fraud, high fees and high interest rates. In fact, even with the skepticism associated over releasing personal information, online shopping remains more trusted that shopping in stores today. For ecommerce merchants who are looking extend their reach to even more online shoppers, providing trustworthy payment options such as alternative payment methods will be the next step to creating a better customer experience.

 

Do customers distrust credit cards?

With US ecommerce reaching $53.86 billion in the third quarter of 2014, it would be realistic to believe that consumers have warmed up to the idea of releasing their personal information when making purchases online. However, even with the increasing growth of ecommerce, three out of four online buyers feel as though their payment information is not secure. So what’s driving 63% of Generation Y to go without owning a credit card? Fraud, fear of debt and the rise of alternative payment methods are all contributors.

 

Fraud

 

Demographically, we can divide the majority of online shoppers today into two age categories; Generation X (born 1965 – 1979) and Millennials, or Generation Y (born 1980 – 2000). While the two generations have demonstrated a similar amount of distrust when it comes to ecommerce and online transactions, they have different rationales.

 

For the older generation, their skepticism stems from their fear of fraud. According to a study by Accenture, 34% of Generation X have changed the way they shop online after being victim of credit card fraud. This is in comparison to the mere 28% of Generation Y. From studies such as this we’ve been able to denote that while the older population utilizes their credit cards more often online, they are not as tolerant when it comes to trusting online payments.

 

On the flip side, 1/3 credit cards are wrongly declined during card not present purchases – or ecommerce transactions, with majority of those due to suspected fraud. While it is critical for merchants to protect both themselves and their customers from fraud, circumstances such as wrongly declined transactions leads to frustrated customers and significant revenue loss for the merchant. Moreover, credit card companies and the merchants are the first to be blamed when these incidences do occur- costing online retailers and their partners up to $40 billion annually.

 

Fear of Debt

 

Contrary to GenX, GenY has opted against using credit cards not due their lack of trust with releasing their personal information, but with debt associated by using the cards. Online shoppers ages 18 – 29 years old prefer to use debit over credit cards by a ratio of 3:1. A staggering 63% of this generation does not even own this type of plastic. Aside from the population’s preference against using credit cards, the CARD act of 2009 has also contributed to the decline in credit card usage. In recent years, the act has made it increasingly more difficult for people under 21 to obtain credit cards and for financial institutions to market to students.

 

Rise of Alternative Payment Methods

 

For a generation that has proven to be increasingly apprehensive about owning credit cards, GenY has shown continued interest in adapting alternative payment methods. Within the past year, 45% of these shoppers have supplemented traditional banking methods with alternative financial services or products. In fact, out of a survey in which 6,200 shopper were questioned, only 48.9% and 45.4% trusted PayPay and Amazon respectively. However, more than 50% of Generation Y trusted both payment options. This growth in popularity is largely associated with lower and more predictable fees found with alternative payment methods. In recent studies, these payment options have actually shown to be a better fit for the younger generation than the use of credit cards, with 42% of GenY stating these products as being more convenient for them.

 

Takeaways

 

It’s apparent that while for most people credit cards are essential for day-to-day activities, many have found ways to avert the use of these payment options. With the growth of alternative payment methods and increased security surrounding them, there has come a tendency for customers to move from their plastic purchases to other options that are less susceptible to fraud, high fees and high interest rates. In fact, even with the skepticism associated over releasing personal information, online shopping remains more trusted that shopping in stores today. For ecommerce merchants who are looking extend their reach to even more online shoppers, providing trustworthy payment options such as alternative payment methods will be the next step to creating a better customer experience.