20 September, 2000

The e-kids are alright

by Karen Holloway

Last week, Splash Plastic unveiled a payment card for teenagers that it said would re-shape the landscape of e-commerce in the UK by opening the floodgates to internet shopping by under-18s.

Splash Plastic's top-up debit card, which offers a payment system similar to pre-paid mobile phone cards, will be available nationwide in February 2001. The company is working with payment system providers to develop a network of 60,000 high street terminals, which will make it possible for cardholders to top-up their accounts at newsagents around the country.

Briand Beausoleil, marketing director at Splash Plastic, believes there is pent-up demand from e-tailers for this type of service: "If I were an e-tailer, I would be looking at offering this type of mechanism to broaden their reach. Any online merchant is going to find this service beneficial."

It's not hard to see why there might be a market for a system of this kind. There are an estimated 6.7m teenagers in the UK, with an annual expenditure of up to £20bn &endash; and Forrester Research estimates that 8% of teens aged 15-17 are regular internet users, while half of UK citizens between the age of 15 and 24 go online regularly. And in the US, the market is even further advanced, with kids, teens and young adults aged 8 to 24 spending $164bn a year, of which 13% is spent online according to a study by Harris Interactive and Nickelodeon Online.

However, Splash Plastic is not the only payment option available to teens. Whereas just last year, youngsters could only shop online if they borrowed their parent's credit card, they are today being bombarded with a plethora of payment options from digital currency companies keen to tap into the booming teen shopping market.

Y-creds set the ball rolling in January when it launched what it claims is the UK's first retail site for teenagers. Parents can deposit funds from their credit cards into an 'e-wallet', which the child can spend in one of 18 online shops offering everything from CDs, videos, books, computer games and mobile phones.

A similar service, Rools.com, is set to go live before Christmas offering a shopping site backed by a financial institution. Youngsters must register for a bank account before they are able to make purchases on the site, which will sell everything from DVDs to games, clothing and music.

Competition stepped up another notch this month with the announcement that World Online will offer a pre-paid scratch card allowing consumers to pay for goods and services online. The ISP believes that the Jalda system, which will be available from October, will open up e-commerce to people who do not hold credit cards &endash; particularly teenagers.

The Jalda card system will allow internet users to make micro-payments for services such as streamed music and online gaming, as well as to purchase products. Users will scratch off a covered panel to reveal a PIN number, which can be entered on the site as a form of currency.

Andy Matko, Marketing Director of World Online business services, said the UK online teen shopping market is still untapped: "There is a large pent-up demand from businesses for our type of service. At the moment, they are not able to sell things to people who don't have a credit card."

The scratch cards will be distributed across the UK in newsagents targeting teenagers and adults who want to use the card for casual internet usage. Matko explained: "We have tried to do something really simple by offering a pre-paid card. It is almost primitive. It is like the pre-paid mobile phones."

However, Matko does not believe that there is space in the market for many competitors: "Our goal is to be one of the leading companies. Jalda, at the end of the day, is like cash or debit cards. It's like giving your child pocket money. By allowing parents to set up Jalda accounts, it allows them to monitor their child's internet expenditure."

Jay Marathe, head of consulting at Durlacher, said it is too early to tell which of these companies will succeed: "The market will evolve to the company which is the most attractive. It is still in the early stages of testing the business models. The range of products and retailers will have to be large and attractive to succeed in the online market."

He added: "The internet-based system is very attractive. For someone like World Online, which already has relationships established, it should be easier for them to offer this service."

Mike Honor, analyst at Forrester Research, said retailers will wait to see how the market changes before integrating the various payment methods into their businesses: "They may choose one or two as a gesture, but very few will cover each of these new entrants."

Honor said the most popular systems will be the ones that offer both card security and teen shopping: "Security is the single biggest thing that deters people from shopping online. What we'll see in two to three years' time is a one-click purchase for any kind of retailer with more security measures. The larger players that are established with customer contacts are the best equipped to do this. They will have powerful offerings."

Paul Basham, COO of Y-creds, agreed that it will be the companies that strike the right strategic partnerships that will survive: "It's a hot sector. There are a lot of people popping up in this space. I believe we are headed towards a Mexican standoff, because there is only space for two or three players in this market."

Basham said Y-creds has been "growing faster" than the site can deal with, but could not reveal usage numbers.

Adam Hamdy, co-founder of Rools, also believes the market will consolidate within the next year: "There are about eight competitors either coming into the UK or about to launch. The market won't sustain that level of competition."

Rools claims to be different from its competitors in that it is the only one to be backed by a financial institution. Hamdy said: "We ensure that our customer's purchases are guaranteed. With the pre-pay or voucher schemes, if a company suffers financial trouble, there is no guarantee that they'll get their money back."

Perhaps the only certainty is that competition will escalate &endash; Global Internet Billing's micropayments system and US company Visabuxx have already set their sights on the UK, with more likely to follow. And that's bound to trigger consolidation and mergers until just a few key players and systems dominate the market.


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