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New Study: Online Merchants Miss $5.5 Billion Opportunity in Digital Commerce

SAN JOSE, Calif., — September 26, 2005 — The results of the 2005 PaymentOne Annual Consumer Payment Poll indicate that digital merchants are losing over $5 Billion in digital commerce revenues due to the lack of safer and more convenient payment options for consumers.*

For the third straight year, consumers indicated a willingness to spend more online if given safe, convenient payment options beyond credit card. Once again, more choice in payment options was the overwhelming driver of purchase behavior by a six to one margin over improved content and by three to one margin over more affordable broadband access.

Initiated by PaymentOne, the poll results were published by Javelin Strategy & Research in September 2005. The poll surveyed 2200 US consumers regarding their online payment preferences around digital content and services. Music, software, games, security services, subscriptions, personals, video, access and related premium services were among the top categories of purchase interest according to consumers polled.

78 Percent of Consumers Would Buy More in 2005, Up From 61 Percent in 2003

• 78 percent of decisive consumers polled say they would "be more inclined to purchase online if given a safer, more convenient payment method than credit card;" This is up from 76 percent from a year ago and 61 percent in 2003.
• The numbers among younger consumers aged 18-34 were even higher, with over 81 percent indicating they would buy more, reflecting their desire for safer and easier payment alternatives.

Forward-thinking digital merchants are adopting improved payment strategies, and many have started to use payments as a value-add revenue driver - something very well developed in the offline world. Yet many online merchants still maintain ambivalence to the importance of payment, which is counter to actual consumer preference. Joe Lynam, President and CEO of PaymentOne stated: "Consumers, including those with substantial disposable income, continue to tell the industry that they want a safer, more convenient way to transact online. This represents a significant growth opportunity and competitive imperative for online merchants, and unlike other major product or service enhancements, does not require up front investment."

Majority of Consumers Cite Privacy and Identity Theft Concerns

• 54 percent of those polled curtail their online shopping due to fears that their privacy or financial information (or both) will be abused or stolen.
• The top concern (28 percent) is that information will be either intercepted during a transaction or accessed by unauthorized parties.

In addition to credit card holders who had significant concerns about buying online, 16 percent of consumers stated that they were not able to transact online because they did not possess a credit card.

"The major finding of the poll-that the availability of secure and convenient payment options beyond traditional credit and debit cards can drive significant incremental purchases--indicates an outstanding opportunity for online merchants to grow revenue through the introduction of payment alternatives," said Bruce Cundiff, Research Analyst, Javelin Strategy & Research.

Billions of Dollars In Digital Commerce Revenues Could Be Reclaimed

• Merchants are collectively losing nearly $5.5Billion in incremental revenue and tens of millions of potential subscribers per year

In fact, by solely enhancing their payment options, PaymentOne clients alone have generated over $1.8 billion in incremental revenues and have acquired millions of new subscribers previously unreachable.

"No credit card required" payment options represent significant potential for content providers and network operators to attract more consumers: "For half a decade, PaymentOne's flagship PhoneBill service has enabled consumers to simply charge digital services to their existing phone and broadband bills, without having to disclosure sensitive private financial information," added Brad Singer, Vice President of Products and Markets at PaymentOne. "We are seeing more and more demand for our advanced payment platform and assessment services, which enable merchants to deploy a variety of safe and convenient payment options that better meet consumer demands and increase new revenues 25 to 35 percent or more."

Consumers Prefer Existing Phone and Broadband Bills For Charging Smaller Purchases

• Over 50 percent of decisive consumers would prefer to add online charges to their existing phone bills (local, mobile) instead of credit card.
• The inclination to migrate small purchases to phone, wireless, or broadband bills is particularly strong among consumers 18-34 years of age.

Existing local and mobile phone bills are generally trusted, easy methods for consumers to utilize for making digital goods and services purchases. Since phone service is considered a necessity by most, it's one that the typical consumer will not allow to lapse. These existing billing instruments are especially attractive because they reduce the need for consumers to establish multiple, separate billing relationships, and do not require them to repetitively disclose sensitive information across multiple sites for small purchases.

Big Opportunity for Network Operators to Bundle Digital Content Services for Broadband Consumers

More than one-third of broadband respondents, and over 50 percent of those in the 18-34 age group, indicated that they would more likely subscribe to online services from their broadband provider if they could add the charges to their broadband bills. This translates into direct, incremental revenue and stickiness for broadband service providers in the form of recurring subscription sales, and provides incentive for merchants to bundle services with network providers.

For a complete copy of the 2005 PaymentOne Annual Consumer Payment Poll, please visit http://www.paymentone.com/2005poll

Study Background and Methodology

About PaymentOne

To help online merchants attract, convert and retain a wider audience, PaymentOne's integrated suite of revenue optimization services include a unique set of non-credit card payment alternatives, macro and micropayments, identity verification and fraud detection, traditional payment processing, global payments, and a co-marketing distribution network. The company's flagship PhoneBill service provides merchants with a "no credit card required" payment option and direct access to over 150 million consumers. To learn more about PaymentOne, visit www.PaymentOne.com or call 800-747-4028.

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(C) 2005 PaymentOne Corporation. All rights reserved. PaymentOne, PhoneBill, PayConnect, DirectBill, WebBill, PaymentOne Carrier Network, PaymentOne Broadband Content Network, Propensity to Pay, PayOne, Payment Practice Index, are trademarks, service marks or registered trademarks of PaymentOne. The names of actual companies and products mentioned herein are the trademarks of their respective owners

*$5.5 Billion is PaymentOne's estimate of the revenue potential lost due to lack of payment options.