Understanding the E-Wallet User

A Market Research Report

© 2001 MasterCard International Incorporated. All rights reserved. The information contained herein is proprietary and confidential to MasterCard International and its members and may not be used for any other purpose. This material may not be copied, distributed, published, or disclosed, in whole or in part, in any medium, without the prior written permission of MasterCard International.

Research Highlights• Shopping cart abandonment continues to be a widespread

problem for online retailers. One major reason is the length

and difficulty of merchant checkout form completion.

• Close to 20 percent of online shoppers have already installed

an e-wallet, primarily to fill out online forms.

• 94 percent of users surveyed had positive e-wallet experiences

and most intend to continue using their e-wallet.

• Financial institutions or credit card companies are most

preferred as e-wallet providers.

• Online shoppers using issuer-supplied e-wallets report

increased online spending and greater loyalty to the cards.

• Users are interested in having a variety of features in their

e-wallet, including financial functions.

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Estimated Quarterly U.S. RetailE-Commerce Sales

(Billions of Dollars, U.S.)

(Data not adjusted for seasonal, holiday, or trading day differencesand does not include travel, financial goods, or tickets)

Source: U.S. Department of Commerce

Q4 1999 Q1 2000 Q2 2000 Q3 2000 Q4 2000

$5.198 $5.240

$6.393

$8.686

$5.526

10

8

6

4

2

0

1. “Retail E-Commerce Sales in Fourth Quarter Were $8.7 Billion, Up 67.1 Percent from Fourth Quarter 1999, Census Bureau Reports,” U.S. Department of Commerce News, February 16, 2001.

2. “The Payments Agents: The Next Generation of E-Wallets,” IDC, December 2000.3. “E-Commerce Payment and Shopping Tools: U.S. Tracking Study, Wave 2,” MasterCard International, March 2001. 1

Research MethodologyThis research took place fourth quarter 2000 and consisted of 450 random online "interviews" withU.S. residents who are members of Greenfield Online’s proprietary panel. All respondents had an electronic wallet installed or activated in the previous six months; made an online purchase duringthat same time period; and owned a multi-purpose credit, charge, and/or debit card.

Some of the findings included in this publication were taken from other MasterCard proprietarystudies and are noted as such.

Executive SummaryIn recent years, Internet commerce has grown steadily, with e-retail sales accounting for an increasingpercentage of total retail sales. Yet, there is still huge potential for additional growth. U.S. retail e-commerce sales for fourth quarter 2000 reached $8.69 billion (an increase of nearly 36 percent over the previous quarter).1 By 2004, U.S. consumer spending online will reach $163.2 billion.2

A variety of tools has been developed to enhance the online shopping consumer experience with theultimate goal of increasing online purchasing. One tool is the digital wallet, or "e-wallet." The earlieste-wallets sought to streamline the shopping experience by helping consumers fill out online forms.Over the relatively short period that e-wallets have been available to consumers, their capabilitieshave evolved to offer more functionality. Today, close to 20 percent of online shoppers have alreadyinstalled an e-wallet.3

How do online shoppers feel about e-wallets? How do e-wallets impact online spending behavior? To answer these and other fundamental questions, MasterCard® launched the Electronic Wallet UsageStudy in late 2000 to achieve the following:

• Assess the e-wallet usage experience

• Gain insight into e-wallet users’ attitudes toward different e-wallet providers

• Understand the functions that make e-wallets desirable

Shopping CartAbandonmentTime-consuming checkout proceduresadd to shopping cart abandonment.

Various studies have reported that amajority of online shoppers load theirshopping carts only to abandon thembefore checking out. PreviousMasterCard research has shown that 80 percent of online shoppers hadabandoned shopping carts at least oncein the previous three months.4 One yearlater, online shoppers still experience thesame problems with the checkout process.

Shopping cart abandonmentcontinues to bea problem foronline retailers,with fewer thantwo percent ofvisits to thesesites resulting inpurchases.5

Major Reasons for Shopping Cart Abandonment

55%

45%

44%

40%

21%

20%

14 %

Higher than expected shipping charges

Just window shopping/comparing prices

Website was not working properly

Took too long/required toomany fields

Website requested toomuch personal information

Was unable to use a coupon ordiscount code on site

Website was not secure for online shopping

4. “U.S. Consumer Internet Use and E-Shopping Report,” MasterCard International, February 2000.5. “Clinching The Holiday E-Sale,” Rewick, Jennifer, The Wall Street Journal, October 9, 2000.

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3

Awareness and Useof E-WalletsThe first step toward stronger e-walletusage is increasing consumer awarenessand understanding of the technology.

The next step is toensure a positive consumer experience to encourage continueduse of e-wallets afterinitial activation.Ninety-four percent ofusers surveyed had positive e-wallet experiences, and mostof those intend to continue use in thefuture.

As a result of growingawareness and positiveconsumer experienceswith e-wallets, theoverall utilization ratehas risen from 14 percent to 17 percent in the six monthsfrom Spring 2000 to Fall 2000.6

Awareness of E-Wallets

Spring 2000 Fall 2000

43%

50%45%

52%

24%

32%

Total Online Buyers Online Non-Buyers

60%

50%

40%

30%

20%

10%

0%

Source: "E-Commerce Payment and Shopping Tools: U.S. Tracking Study, Wave 2," MasterCard International, March 2001

Use of E-Wallet vs. Merchant Accounts(Percent Ever Used)

Spring 2000 Fall 2000

Source: "E-Commerce Payment and Shopping Tools: U.S. Tracking Study, Wave 2," MasterCard International, March 2001

14%

17%

23%

26%

E-Wallets Merchant Account

30%

25%

20%

15%

10%

0%

5%

6. “E-Commerce Payment and Shopping Tools: U.S. Tracking Study, Wave 2,” MasterCard International, March 2001.

Online shoppers arehappy with their e-wallet experiences and intend to continue use.

The vast majority of e-wallet users indicatethat this tool hasenhanced online shopping. Nearly nine-in-ten are somewhat likely to use an e-wallet in the near future, with six-in-ten having a highlikelihood of doing so.

Satisfaction with E-Wallets and Intended Future Use

Positive Experiences with Use of E-WalletsPositive Experiences Using E-Wallets (net) 94%

Base: Experienced Electronic Wallet Users (n = 415)

81%

69%

60%

58%

53%

42%

31%

26%

Saved time filling out forms

Successfully filled out forms

E-Wallet helped fill outforms more accurately

Password retrieval function worked when needed

Felt credit card information was securely stored by e-wallet

through e-wallet Used coupon or discount offer

Was able to store multiple credit cardnumbers and shipping addresses

E-Wallet automatically popped up when blank forms appeared

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Likelihood of Using an E-Wallet in the Next Three Months

Extremely/Very/Somewhat Likely 84%

Extremely/Very Likely 62%

Extremely Likely 39%

Very Likely 23%

Somewhat Likely 22%

Not Very Likely 11%

Not At All Likely 5%

Base: Experienced Electronic Wallet Users (n = 415)

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Preferences for Type ofE-Wallet ProvidersUsers prefer to have financialinstitutions provide their e-wallets.

Most wallet users want a traditional credit card companyor financial institution to provide their e-wallet becauseof the perceived security andaccess to financial and bankingfunctions. Moreover, about 50 percent of consumers who use the two most popularInternet e-wallets would prefer a wallet hosted by acredit card company.

Type of Company Preferred toHost/Support an E-Wallet

Traditional Credit Card Company/Financial Institution

Internet Service Provider (ISP)

36%

11%

53%

This represents a substantial card issuer opportunity

Internet Company

Base: Experienced Electronic Wallet Users (n = 415)

Characteristics Associated with DifferentTypes of E-Wallet Providers

Base: Experienced Electronic Wallet Users (n = 415)

67% 24% 9%Security

61% 28% 11%Provides access to other financial

banking functions

60% 28% 13%Privacy

53% 36% 11%Extent to which is accepted by

various merchants

41% 46% 13%Variety of features or services

37% 51% 13%Works like it is supposed to work

26% 58% 16%Provides access to shopping

offers/discounts

Traditional Credit CardCompany or

Financial InstitutionInternet Company Internet Service

Provider

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Enhanced LoyaltySuccessful experiences with e-walletsstrengthen the issuer/cardholderrelationship and are likely to result in increased online spending and card usage.

One-in-four consumersnow using e-walletsprovided by theircredit card issuers indicate that theironline spending andassociated card usagehas increased as aresult of having anissuer’s e-wallet. And, a substantialnumber of thosewho have not yetbeen offered an e-wallet anticipateadding to theironline spending with that issuer’scard, if an e-walletwere offered to them.

Most e-wallet users can accurately identify specificbrands of e-wallets, indicatingthat they are cognizant ofthe existing offerings andcan differentiate among them.

With e-wallet users indicatingpositive experiences, issuer-provided e-walletspromise to strengthen andgrow the relationship with this segment.

Spending Changes with Use of Card Issuer's E-Wallet

This data is directional given small base size.

Percent that saidonline spending

with the cardassociated with

the issuer'se-wallet has

increased

Percent that saidonline dollar volume

of spending hasincreased overall

23%

23%

Anticipated Spending Increases

28%

Base: Not Yet Offered Card Issuer E-Wallet (n=343)

Percent thatanticipate increased

online spendingon the card account

associated withthe issuer's e-wallet

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Features Desired in E-WalletsStrong interest exists among current e-wallet users for additional functionality.

While "basic" wallet functions, like form-filling and password storage, are still the foundation of e-wallets, a substantial number of users show interest in having e-wallets perform additional functions. Such functions might include generating a temporary account number linked to their credit card account for online purchases ("pseudo-account numbers"); providing shopping offers, discounts, and coupons; and acting as a repository for their online purchasing history.

Percent Rating Extremely/Very Important

Fills out online merchant forms automatically 79%

Inputs merchant account password instantly at merchant site 64%

Stores merchant account passwords for merchant sites 64%

Stores passwords for sites other than just merchant sites 63%

Stores payment information for a credit card 58%

Stores information for multiple credit cards 50%

Stores multiple shipping addresses 45%

Generates a temporary account number linked to your credit card account for online purchases 43%

Provides shopping offers, discounts, and coupons 42%

Provides a centralized history of online purchases 42%

Provides a comparison shopping tool 35%

Provides a merchant directory for online stores on the e-wallet’s website 29%

Offers a person-to-person online payment service 29%

Provides easy access to major search engines, the stockmarket, and shopping sites all in one place 25%

Gives access to other online banking functions 22%

Is automatically activated when a smart card is inserted into a card reader 20%

Provides a special e-mail address for merchant mail 19%

Base: Experienced Electronic Wallet Users (n = 415)

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Financial Functions Desired in E-WalletsOnline banking and other financial activities are logical extensions of existing e-wallet functions.

Users already have experience with online banking and other financial activities, which an e-walletcan help simplify. Furthermore, existing e-wallet users report an interest in using their e-wallets forthese activities.

Online Financial Activities with WhichE-Wallet Users Have Experience

Base: Experienced Electronic Wallet Users (n = 415)

89%

55%

48%

35%

23%

Purchased merchandiseor services online

Applied for a credit cardor charge card

Paid bills

Participated in anonline auction

Transferred balances

Likelihood of Using E-Wallet to PerformFinancial Functions in the Future

Base: Experienced Electronic Wallet Users (n = 415)

58%

54%

35%

34%

29%

Check credit or chargecard statements

Check bank balances

Pay bills

Transfer funds fromone account to another

Send money to anotherperson

SummaryAwareness of e-wallets has grown over the last 12 months among bothonline buyers and non-buyers. The vast majority of current e-wallet usershave been pleased with their e-wallet’s ability to save them time and simplify the online shopping experience by automatically remembering passwords, billing information, and shipping addresses. In addition, a sizeable proportion of current e-wallet users report increased online spending and a greater tendency to use the card associated with their issuer’s e-wallet.

Positive experiences with e-wallets, coupled with the fact that a majority of current e-wallet users prefer a wallet issued by a traditional credit card company or financial institution, represent a substantial opportunity for MasterCard card issuers. Our research indicates that cardholders would use their "trusted" e-wallet not only to shop online more often, but also to engage in other financial activities. This would serve not only to enhance the cardholder-issuer relationship, but also to reinforce theissuer’s brand as well.

Clearly, users understand that e-wallets are multi-dimensional and can act as platforms for related financial functions. In addition, strong interest wasshown in offering some of the newer financial applications via an e-walletincluding access to online banking applications and person-to-person payments. Interest was also demonstrated in substitute account numbers and smart card activation.

Working with our member financial institutions, MasterCard is uniquely positioned to capitalize on emerging technologies by offering cardholdersubiquitous access to their payment accounts. Utilizing new technologies, such as electronic wallets, smart cards, and wireless devices, MasterCard members will be able to deliver payment services at a point-of-interaction that is closest and most convenient to their customers.

MasterCard’s strategic alliances in the e-wallet arena will provide memberswith greater choices when developing their e-wallet strategy, not only foronline activities but also for mobile commerce, set-top boxes, and otheremerging transaction channels. A wide variety of solutions is available, and each provides a unique set of issuer and consumer benefits. To learnmore about MasterCard’s e-wallet strategy and programs, contact yourMember Relations Representative today.

EC501-RESMasterCard International Incorporated© 2001