Research organization Aite Group released results from a survey of merchant acquiring banks and independent sales organizations about payment processing opportunities and challenges for the coming year.

The biggest problem being faced by payment processing acquirers in 2009 was the attrition of merchants, with 24% of the respondents placing this issue as number one. Close behind, 22% of respondents were concerned about the continuing compression of payment processing margins. And 17% of respondents said PCI compliance was a challenge.

Acquirers say merchants are keenly aware of pricing issues. Lower pricing is the main reason merchants will change to another merchant payment processor.

Promising emerging markets for 2010 are mobile payments, business-to-business payments, and ecommerce. Most payment processors have little experience in mobile and are still trying to position themselves correctly in the market.

Business-to-business payments are gaining some penetration for those companies with lower ticket transactions. But, higher ticket business transactions incur payment credit card processing fees that are too high for most businesses to be able to absorb.

SaaS billing recurring payments are a growth industry for payment processors that are expanding ecommerce operations. SaaS billing is sub-genre of subscription billing where consumers establish recurring payments for software rather than a one-time purchase of the software.

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The economy is hitting ecommerce hard. Ecommerce has finally been struck by negative growth and the future is not cheerful.

Third quarter 2009 research from internet research firm comScore indicates that retail spending for online purchases was $29.6 billion, a decrease of fell 2% over the same quarter last year.

This was the first time that consecutive quarters showed a negative in ecommerce spending. The company predicts a marginally positive growth for the 4th quarter 2009 holiday shopping but whether that will really occur is anybody’s guess.

The most crucial incentive for online retailers to entice buyers to purchase is free shipping and more retailers than ever are pushing free shipping. The percentage of e-commerce payments that included free shipping increased from 31% in the 1st quarter of 2008 to 42% in the 3rd quarter of 2009.

Ecommerce companies that do not offer free shipping this holiday season will find themselves at a significant disadvantage. Customers will leave their sites and buy from a retailer where shipping is free.

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According to research firm Aite Group U.S. payment card issuers lost nearly $4 billion in charge volume in 2008, including $78.7 million in interchange, due to problems cardholders had with their cards while traveling abroad. The issues Americans have with cards while traveling can be divided into “hard” problems such as declined transactions at the point of sale or “soft” problems, such as foreign-exchange fees or fear of fraud.

Credit card issuers often decline authorization when a cardholder’s legitimate request originates abroad. Automated fraud-monitoring systems flag a transaction as risky because it originates from outside of the US. Even though the card holder is physically present with the card at point of sale, the transaction is declined.

When encountering a problem with a card, 61% of cardholders pay by cash and 29% use another card. After a trip in which they had a card problem, 19% of card holders said they used the problematic card less.

In addition, US cards are rejected at point of sale outside of the US because most US the cards do not have an EMV chip. EMV is widely used outside of the US and is less vulnerable to fraud than are cards that rely simply on magnetic strips. Problems for U.S. cards will grow as more merchants worldwide install POS terminals that read only chips.

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Interesting payment processing comments on the direction on international ecommerce from researcher BuddeComm.

• Spending on online advertising will account for around 13% of overall ad spending worldwide.
• Alternative payment systems are growing as a global consumer marketplace is demanding payment methods other than credit cards.
• Social media is key in the digital economy and the leading players in this sector will seek to expand their services and incorporate e-payment and m-payment services.

• PayPal is still by far the most popular online payment system worldwide, with around 45% of its customers based outside of the US. PayPal will contribute around a third of eBay’s overall revenue in 2009.
• China now has more Internet users than the USA and offers significant opportunities for e-commerce.
• Online travel is one of the most successful international ecommerce segments. The economic downturn has impacted online travel spending by at least 10% as consumers and businesses reign in spending. But, over $110 billion is still expected to be spent on online travel in the US alone in 2009. Traffic from social networking sites to travel sites is growing and unleashing opportunities for travel sites to further leverage social networks.

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