Booz Allen Hamilton predict that the payment online market will coalesce around two or three players.

E-Payments To Become Mega-Market

Paypal has gained more than a hundred million customers in only a few years since its launch in 1999 and handles more than US$17bn annually. Booz Allen predicts that Google Checkout will take even less time to establish itself as a major player. However, with enormous growth expected in this market there is likely to be room for a further one or two players.

So that would be Google, Paypal, and perhaps one other.  More importantly is the threat to parts of Banks’ core business.

Online Competition for Established Financial Service Providers

Default payment mechanisms, such as credit cards and bank transfers – which currently make up 90% of all consumer transactions – will become increasingly threatened by new ePayment solutions. These solutions will offer a compelling proposition of easy, security and low transaction charges.

If existing providers (predominantly the card issuers and acquirers) do not find an effective counter strategy we believe they could lose 10-20% by 2008and in the long term up to 30%. “The development of the e-payment market will be driven by the big players, Pay Pal and Google. We believe in the long-term they will succeed in getting sufficient critical mass to be attractive to retailers,” said Booz Allen Vice President Victor Koss.

In particular one aspect of this threat is this.  The Booz reports refers to epayments, but, define “e”?  In Japan there are 50 million people making purchases by swiping their phone over the acquiring terminal, and inputting their pin, on the phone.  The nature of this contactless technology, suggests to me that epayment is coming to the high street.  That phone connection is an internet connection, and it would not be hard to Google Checkout to handle that too.

Note:  Paypal in the recently announced results (pdf), indicate 29 million accounts made payments last quarter amounting to 9 billion dollars.  Annual growth rate is 37%

Relevance to Bankwatch:

Generally Banks have lost / chosen not to engage directly in the payment market, and all sorts of payment companies manage that process.  But those companies stuck to managing payments, and everyone played nicely.  This could change with the emergence of new players.