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Knowledge Leadership
MasterCard Worldwide Insights2Q 2008
Online Shopping in Asia/PacificPatterns, Trends and Future Growth
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MasterCard WorldwideA Global Knowledge Leader
MasterCard Worldwide is widely recognized asa knowledge leader around the world. Over theyears, the global payment solutions companyhas devoted extensive resources to developing adeeper understanding of the payments cardmarkets and the business and economic envi-ronment through surveys and independentresearch studies. Some of these initiativesinclude the MasterCard Worldwide Index ofConsumer Confidence, MasterCard WorldwideIndex of Retail, MasterCard Worldwide Index ofTravel & Asian Lifestyles, MasterCard WorldwideIndex of Womens Advancement, MasterCardWorldwide Index of Chinas Affluent and Mas-terCard Worldwide Centers of Commerce.Today, these MasterCard offerings are muchsought after by analysts, academics and deci-sion makers in financial institutions, govern-ment agencies and multi-national organiza-tions.
Launched in 1993, the MasterCard World-
wide Index of Consumer Confidence has provento be an excellent barometer of the generalconsumer pulse in Asia/Pacific. The twice annu-al survey analyzes prevailing consumer percep-tions of economic conditions for the next sixmonths. Its insights into the dynamics of con-sumer sentiment, and the market paradigmdeliver value to a variety of audiences, includingcustomers and business partners.
In 2003, MasterCard established the Master-Intelligence Knowledge Panel comprising lead-ing economists and business strategists fromChina, Hong Kong, India, Japan, Korea andSouth East Asia. In 2006, it was expanded tobecome a global knowledge panel, which nowconducts research and provides insights on theeconomic and business environment globally.The panel is headed by Dr. Yuwa Hedrick-Wong,Economic Advisor (Asia/Pacific), MasterCardWorldwide.
Today, MasterCard continues to demonstrateits commitment by not only adding value withcutting edge research but also through sharingknowledge in new areas. Its knowledge leader-ship is well recognized and unrivaled.
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Online Shoppingin Asia/Pacific Patterns,Trends and Future GrowthExecutive SummaryThis report examines e-commence trends; andidentifies the drivers and barriers to online pur-chases in key markets in the region. Both con-sumer behavior in relation to e-commerce, ande-commerce outlook in the region are analyzed.The role of credit cards in e-commerce and theirimportance in the online shopping regime isalso examined. Both desk top research and anonline survey were used in preparing this report.
The key findings are: Online shopping is a growing trend in theregion, with 63% of survey respondents report-ing that they shop online at least occasionally. The key drivers of online shopping growth aremainly internet penetration, income levels andcultural factors. Huge growth in online shopping is expected,led by China and India but with other countries
such as Thailand also likely to exhibit stronggrowth as incomes and internet penetrationrise. The survey suggests a lower average tendencyin the region for opportunistic purchases withonline shopping compared to offline. But thereare differences within countries which suggestthat the degree of financial sophistication is akey in influencing the degree of opportunisticspending.1
Credit cards are a preferred mode of paymentfor online shopping. If security concerns wereallayed, there would be substantially moreonline shopping and more of this online shop-ping would be paid for with credit cards.
Overview of Online ShoppingOnline Shopping Definitions and ProcessesOnline shopping can be defined as the processof purchasing goods or services over the inter-
net. Most online retailers use shopping cartsoftware to allow consumers to accumulatemultiple items of varying quantities, similar toan actual shopping cart in a real-world store.Once the customer has finished selection, pay-ment and delivery information are provided tocomplete the transaction. Although credit cardsare the most commonly accepted medium ofpayment, most vendors offer a variety of pay-ment methods, including debit card, check, wiretransfer, postal money order etc. Product deliv-ery is accomplished through either shipping orin-store pickup, where the customer picks upthe product from the closest store the businesshas. This is the method most often used by busi-ness with both a physical and online presence,the bricks-and-clicks business model.
Online shopping has many distinct and uniqueadvantages and disadvantages which separateit from traditional retail shopping: On the plus side, online stores are available24/7, unlike traditional retailers, and can beaccessed from the convenience of ones ownhome. Second, searching and browsing forproducts online is often quicker than in a phys-ical store, although consumers with dial-upinternet access may have trouble accessing con-tent-rich websites quickly. On the minus side, the need to ship the prod-uct to the buyer often introduces a significantdelay, not present in traditional retailing. Sec-ond, should the customer not be satisfied withthe product, or should some unforeseen prob-lem arise requiring the product to be returned,it may be more difficult for the customer to
obtain compensation or a refund than if theyhad purchased the product from an actualstore.
The shopping experience for online shoppers isalso very different: In most cases, customers must be content withphotographs and text for a description of theproduct, which in an actual store would beavailable for direct inspection. In the physical shopping experience, shop
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employees are available to answer any ques-tions the customer may have about the product,whereas online shoppers have to rely on emailor telephone communications with a moreanonymous and distant shop employee shouldthey have any queries. On the other hand, online users have access todata such as supplemental product informationand user reviews and comments which may notbe available to bricks-and-mortar shoppers. The ability to compare prices between differ-ent stores quickly and easily is a big advantagefor online shoppers, and they often have accessto a wider selection of goods, made possible by
avoiding the need to physically display them.The availability of unique goods, which may behard or impossible to find offline, is also attrac-tive to consumers.
The development of online shopping hasbeen slowed by a number of factors. Chiefamong them has been online shoppers con-cerns regarding fraud and security. AlthoughSecure Sockets Layer (SSL) encryption has forthe most part prevented interception of creditcard numbers in transit between the consumerand merchant, identity theft is still a concern forconsumers. Lax computer security can allowhackers to break into a vendors website andsteal names, addresses and credit card numbers.Phishing is also a concern, where consumers arefooled by a website crafted to resemble a legit-imate online vendor into giving up their details.Indeed, our survey showed that the factor con-sumers considered of most importance whenmaking an online purchase is a secure payment
facility, with the majority of users (65%) listingit as extremely important, including a high per-centage of Chinese (76%) and Singaporean(77%) consumers. Consumers who had beenreluctant to make a purchase in the last threemonths also listed safety as their primary con-cern (65%), including 87% of Chinese and73% of Indian consumers.
A Brief HistoryOnline shopping is a major part of the overall
electronic commerce, or e-commerce, industrywhich consists of all the buying and selling ofgoods and services over electronic systems suchas the internet and other computer networks byhouseholds, businesses and other agencies.With the spread of the internet, the amount ortrade that is conducted electronically has seenextraordinary growth; and has led to innova-tions and development in areas such as elec-tronic funds transfer, electronic data inter-change and internet marketing.
Before the widespread introduction of theinternet to the general public in 1994, the termelectronic commerce referred to the use of tech-
nologies such as EDI and EFT, introduced in thelate 1970s, to facilitate business practices. Withthe rise of the world wide web many predictedthat e-commerce would soon become a majoreconomic sector, but security protocols such asHTTPS did not become secure enough for wide-spread use of such transactions until 1998.
During the dotcom bubble, which saw theemergence of the internet as a new economicsector, companies catering to consumers seek-ing to make use of this new tool to buy and sellemerged, many of which collapsed when thebubble burst in 2000 and 2001. Despite this,many traditional, brick-and-mortar retailers rec-ognized the valuable markets these companieshad identified, and took steps to add e-com-merce capabilities to their own websites. Newmethods of sending payments, such as e-shop-ping carts, electronic payment services andsecured credit card payment authorizationsbecame more widely used.
The emergence of e-commerce as a viablealternative to traditional retailing models hasalso had other effects. By significantly reducingthe barriers of entry for the sale of many typesof products, e-commerce has allowed sellers toenter the market who may not have had thisability prior to the advent of the internet. Forexample, online auction sites such as eBay, orlarge online retailers such as Amazon, haveallowed small, home-based sellers to bypassmuch of the costs facing new entrants into the
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market, and allowed them to take advantage ofthose companies exposure.
In 2006, online sales in the US, excludingtravel, rose 29% to reach $146.4 billion, 2 repre-senting 6% of overall retail sales 3 and wasexpected to rise 19.1% to $174.5 billion in2007. Total sales including travel are expectedto increase 18% to $259.1 billion. According toa Forrester Research report in January, 4 thisslight deceleration in growth marks the begin-ning of a slower trend reflecting the maturingof e-commerce and online shopping in the US.The Forrester report predicts 17% growth in2008, followed by further slowing to an aver-
age of 11% annual growth by 2012, at whichtime the market will be worth $334.7 billion.
Growth, however, is poised to accelerate inthe Asia/Pacific region. While business-to-con-sumer e-commerce sales for the five major mar-kets in the region amounted to a little over $59billion in 2006, with Japan having the largestshare, this situation is soon expected tochange. 5 E-commerce sales in Asia are expectedto grow at an annual rate of 23.3%, reaching$168.7 billion by 2011. Japan, currently thelargest market in the region with 62% of onlinesales, is expected to lose this pre-eminence asthe two large emerging markets of China andIndia develop. Although internet penetration inthese countries is low, at 15.9% and 5.3%respectively, their large populations translatethis into a huge number of internet users. Chinais poised to overtake the US in the sheer volumeof internet transactions this year.
There are, however, still a number of con-
straints on the future growth of the e-com-merce industry in Asia, such as immature onlinepayment systems, poor delivery networks anddistrust between buyers and sellers. Consumersin this region also continue to have issues withthe security of the online retailers they frequent,as well as the convenience of the paymentmethods available. A tradition of cash-basedtransactions, common to developing countries,also results in distrust. The lack of a nationwidecredit information system or an efficient delivery
network, both essential infrastructures whichare vital for continued, sustainable growth inthe e-commerce sector, also limit the ability ofmany Asia/Pacific markets to expand rapidly inthis sector. Nevertheless, the overall potential ofe-commerce is immense in Asia/Pacific.
The Online Surveyand Key Findings 6
MethodologyThe survey was done between 18th December2007 and 28th December 2007; with a totalsample size of n = 4,157 in the Asia/Pacific
region including:Hong Kong n= 541China n= 519Australia n= 517Singapore n= 515South Korea n= 520Japan n= 507India n= 517Thailand n= 521
The sample was restricted to individuals withbank accounts between the ages of 18 and 49who accessed the internet at least once a week.
Key Findings: Frequency of UsageThe survey found that online shopping was con-ducted by 63% of all respondents in the region,with an especially high percentage from SouthKorea (83%) and Japan (83%). Although 43%of respondents claimed to only purchase onlineoccasionally, and 19% browse online but pur-
chase offline, a sizable percentage (32%)browsed and purchased online regularly, with60% of South Korean and 55% of Japaneseonline shoppers claiming they did so (Chart 1).
An average of 3.1 purchases per personwere made by online shoppers in the regionover a period of three months (Table 1). Notethe following: The most active shoppers were from SouthKorea (4.8) and Japan (3.7).
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Online shoppers from Thailand and HongKong were the least active, with an average pur-chase of just 1.8 times and 2.1 times respectively. Most online shoppers (76%) in the regionclaim that they will make a purchase in the nextsix months, especially those from South Korea
(93%) and China (87%).
Online shoppers in the region spent an aver-age of $612.40 online over a period of threemonths, with the greatest spenders comingfrom Singapore ($770.70) and South Korea($707.50); while online shoppers from China($506.10) and Thailand ($406.30) spend the
least.
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Table 1. Frequency and Value of Online Purchases in Asia/Pacific
Australia
China
Hong Kong
India
Japan
Korea
Singapore
Thailand
Asia/Pacific
3.4
3.6
2.1
2.5
3.7
4.8
2.8
1.8
3.1
Country
653.50
506.10
561.10
629.20
581.00
707.50
770.70
406.30
601.90
56
63
31
39
60
56
44
31
47
Indicative Average Frequencyof Online Purchases
in Past 3 Months
Likely to Make Online Purchasesin the Next 6 Months
(Percentage of Respondents)
Total Spendingon Shopping Online
in the Past 3 Months (USD)
Chart 1. Purchase Behavior in Asia/Pacific
Source: MasterCards Survey Findings conducted by IPSOS
80
70
60
50
40
30
20
10
0
Percentage
Australia China Hong Kong India Japan Korea Singapore Thailand APAC
Purchase Online Occasionally
Purchase Online Regularly
Purchase Offline Only
Source: MasterCards Survey Findings conducted by IPSOS
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Key Findings: Perceptions of Online ShoppingGenerally, Asia/Pacific users perceive onlineshopping to be convenient (71%) and easy(66%), with 62% of the respondents claimingthat online shopping is easier than shopping viaoffline catalogue and telephone. However, anumber of respondents (33%) in the region do
not feel secure shopping online, with an espe-cially high proportion (50%) among Thai shop-pers. Table 2 reports that the factors that aremost important to Asia/Pacific online shoppersinclude a secure payment facility (87%), price(87%), and convenient payment methods(85%).
Chart 2. Major Reasons for Not Making Online Purchases in Asia/Pacific
Source: MasterCards Survey Findings conducted by IPSOS
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Table 2. Important Factors Affecting Propensity of Online Shopping
Australia
China
Hong Kong
India
Japan
Korea
Singapore
Thailand
Asia/Pacific
89
92
83
87
78
82
94
90
87
SecurePaymentFacility
90
85
79
84
86
83
92
86
87
Price/Value
88
86
78
83
78
84
92
90
85
ConvenientPaymentMethods
80
90
82
77
61
92
87
74
79
Reputationof Website
81
82
77
84
66
77
85
81
80
GoodCustomer
Service
79
77
80
72
82
83
88
79
80
LowDeliveryCharges
82
67
71
79
66
84
88
80
77
User-FriendlyWebsite
78
81
73
81
58
80
83
81
77
SpeedyTransaction
56
69
73
57
70
77
77
69
69
PromotionalOffers
100
90
80
70
60
50
40
30
20
10
0
Percentage
Australia China Hong Kong India Japan Korea Singapore Thailand APAC
Reasons for Not Purchasing Online
Security Concerns
Prefer to Look at Physical Product
Additional Administrative/Delivery Charges
Source: MasterCards Survey Findings conducted by IPSOS
Tier I Tier II Tier III
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Key Findings: Security a Major ConcernSecurity is the top concern for online shoppersin the Asia/Pacific region (Chart 2); 65% ofinternet users who are reluctant to shop onlinedo not do so because they fear making onlinetransactions is unsafe, and the figure jumps inChina (87%), Thailand (75%), Hong Kong(74%) and India (73%). It seems that onlineshoppers in more developed nations such asSouth Korea (26%) and Japan (31%) are not asfearful as online shoppers from developingcountries. When asked how online shoppingcould be improved in the future, the vast major-
ity (74%) of online shoppers wanted to seeenhanced payment security and improved userconfidence in online transactions.Key Findings: Methods of PaymentIn general, the most preferred method of onlinepayment for consumers in the Asia/Pacificregion was found to be credit card (Table 3),with the exceptions of China and Thailandwhere the debit card is more preferred foronline purchases. Meanwhile, convenience andease of use are the main factors triggering theuse of credit cards for online purchases in theAsia/Pacific region (Chart 3).
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Table 3. Most Preferred Form of Online Payment Method in Asia/Pacific
Australia
China
Hong Kong
India
Japan
Korea
Singapore
Thailand
Asia/Pacific
52%
25%
66%
60%
70%
49%
63%
41%
53%
24%
35%
20%
24%
17%
28%
26%
46%
27%
3%
32%
7%
2%
5%
5%
8%
7%
9%
19%
7%
5%
4%
6%
16%
2%
4%
8%
Country Credit Cards Debit Card Electronic Transfers Others
Source: MasterCards Survey Findings conducted by IPSOSNote: Others include PayPal, Cheque Card and Cash
Chart 3. Reasons for Using Credit Card for Online Purchases in Asia/Pacific
Source: MasterCards Survey Findings conducted by IPSOS
40
30
20
10
0
Percentage
Convenience
Ease of Use
Promotional Offers
Secure
Only Online PaymentMethod
Lower Charges
Easier to ControlSpending
Reputationand Recommendation
None
Reasons for Using Credit Card for Online Purchases
Percentage of Respondents
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Key Findings: Customer BehaviorThe survey finds that 44% of online shoppers inAsia/Pacific have been shopping online for morethan three years, with an especially high pro-portion noted among Koreans (62%) andJapanese shoppers (68%). A majority (84%) ofonline shoppers in the region tend to plan theirshopping in advance and conduct research ontheir planned purchases, including browsing onthe internet (87%) and the merchants website(61%) and through recommendations (47%).
The survey also found that 43% of Asia/Pacificonline shoppers tend to purchase online mostof the time after browsing online, with signifi-cantly higher incidence rates of 89% and 78%reported among Japanese and Thai shoppersrespectively (Chart 4). The products and servicesmost frequently bought online (Chart 5) amongAsia/Pacific online shoppers are books and art(41%), home appliances and electronic prod-ucts (39%), CDs/DVDs/VCDs (38%) and ladiesclothing/accessories (38%).
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Chart 4. Incidence of Browsing to Purchase Online in Asia/Pacific
Source: MasterCards Survey Findings conducted by IPSOS
Note: The chart reports the proportion of respondents in each respective country that will purchase most of the time after browsing online.
100
80
60
40
20
0
Percentage Incidence of Browsing to Purchase Online
Percentage of Respondents
Australia China Hong Kong India Japan Korea Singapore Thailand APAC
Source: MasterCards Survey Findings conducted by IPSOS
Chart 5. Products and Services Frequently Shopped Online in Asia/Pacific
Products/Services Frequently Shopped Online
Books and ArtElectronic Products
CDs/DVDs/VCDsLadies FashionAirline TicketsToys and Gifts
GroceriesMovie/ Concert Tickets
CosmeticsPersonal Care
Hotel AccommodationsMens Fashion
Health ProductsMedical Products
Insurance
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Percentage of Respondents
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Opportunistic buying as a whole does not seemto be a major factor for many online shoppers:41% bought on impulse just a couple of times,while 34% hardly ever bought on impulse. Forthose online shoppers that did make oppor-tunistic purchases, the main trigger appeared tobe low prices or substantial discounts comparedto what was available offline, which 74% ofonline shoppers listed as a factor. Other factorsinclude the availability of unique items thatwere available only online (48%) and advertise-ments and promotions (33%). Similar to thetypes of products frequently purchased online,
items most likely to result in opportunistic buy-ing were ladies clothing and accessories, homeappliances and electronic products andCDs/DVDs/ VCDs.
Analysis of Survey FindingsIn this section, survey findings are analyzed inconjunction with other data to drill down deep-er into online customer behavior in theAsia/Pacific region. Chart 6 summarizes the keystatistics highlights of online shopping inAsia/Pacific.
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Table 4. Online Shopping Statistics in Asia/Pacific, 2007
Australia
China
Hong Kong
India
Japan
Korea
Singapore
Thailand
Asia/Pacific
67.0
70.0
50.0
47.0
83.0
83.0
60.0
43.0
62.9
CountryProbability
of Online Purchases 1(Percentage)
75.9
15.9
69.9
5.3
68.7
71.2
53.2
13.0
46.6
Internet Penetration 2(Percentage of Population)
7.4
11.8
8.9
11.0
8.4
10.7
9.8
10.5
9.8
Online Purchases/Income 3(Percentage)
Source: MasterCards Survey Findings conducted by IPSOS, EIU Database and Internet World Stats website (http://www.internetworldstats.com/stats.htm).Notes: 1. From the survey, percentage of sample that have purchased online. 2. From Internet World Stats website. 3. Average amount of spending per year/annual income reported by survey respondents.
Chart 6. Japan and Korea have the Highest Online Shopping Penetration Rate
Source: MasterCards Survey Findings conducted by IPSOS, EIU Database and Internet World Stats website (http://www.internetworldstats.com/stats.htm).Notes: 1. Online shopping penetration rate defined as the proportion of online shoppers population among online population is calculated using the probability of online purchases.2. Online shopping penetration depth is calculated using the proportion of online purchases over total personal consumption expenditure.
908070605040302010
PercentageOnline Shopping Statistics in Asia/Pacific
Australia China Hong Kong India Japan Korea Singapore Thailand APAC
Online Shopping Penetration RateOnline Shopping Penetration Depth
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Online Shopping in Asia/PacificMarket depth, being one of the key factorsshaping strategic business development andplanning, will be examined in detail in this sec-tion. Combining empirical findings from thesurvey and figures collated from economic data-bases and relevant websites, several indicatorsthat affect online shopping in the Asia/Pacificare examined.
Table 4 reveals the following online shoppingtrends in the Asia /Pacific region:
Japan and Korea have the highest online shop-ping penetration rates in the region, with an83% probability each that the online popula-tion will purchase online. China has one of the lowest internet penetra-tion rates (15.9% of population) in the region.But the online shopping penetration rateamong this small group is unusually high at70% indicating that the online population hasa high tendency to make online purchases.
India and Thailand have the lowest onlineshopping penetration rates in the region, with aprobability of less than 50% that the onlinepopulation will purchase online.
Drilling further down through the data, wederived a measure of the intensity of onlineshoppers spending by comparing the ratio ofonline shopping over income (Column 3 in Table4) to the ratio of personal consumer expendi-ture to gross national income in each country. 7
This brings out some interesting characteristics(Table 5):
Surprisingly, developed countries in the regionlike Australia, Hong Kong and Japan tend tohave relatively lower online shoppers spendingintensity an indication that the extent ofonline shopping spending depends on morethan the level of income in the country.
Among the sampled online shoppers in China,a significant and extraordinarily large proportion(32.8%) of their personal consumption expen-diture is estimated to be contributed by onlinepurchases.
Thailand and India: Online shoppers spendingintensity in both countries is slightly below theregions average.
Key factors Driving OnlineShopping PenetrationAn econometrical analysis was conducted toidentify key factors driving online shopping pen-etration rates. The empirical evidence suggeststhat there is an 87.1% possibility that a strongrelationship exists between the online shoppingpenetration rate and three factors; (i) internetpenetration rate, (ii) income level and (iii) culturein each of the countries analysed. While it istrue that the sample of eight countries is inade-
quate to make a strong inference, plotting the
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Table 5. Online Shoppers Spending Intensity
China
Singapore
Korea
India
Thailand
Hong Kong
Japan
Australia
Asia/Pacific
Country
32.8
24.5
20.0
19.4
18.7
15.2
14.7
13.1
19.8
Estimated Online Purchases/Total Personal Expenditure 1
(Percentage) of Sample
Source: MasterCards Survey Findings conducted by IPSOS, EIU Database andInternet World Stats website (http://www.internetworldstats.com/stats.htm).
Notes: 1. Calculated as the ratio of Online Purchases/Income (Column 3)to the ratio of personal consumer expenditure/GDP in each country.
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charts 7 to 8 does show a distinct relationshipbetween these variables.
The widespread usage of internet in a coun-try will tend to result in a more favorable atti-tude towards online shopping among the pop-ulation. Countries with higher internet
penetration rates in the Asia/Pacific are reported tohave higher online shopping penetration rates(Chart 7). Indeed, security concerns the top fac-tor deterring online shopping activity in theregion tends to be low in countries with highinternet penetration rates, and vice versa (Chart 8).
Q2 2008 11
Source: MasterCards Survey Findings conducted by IPSOS, EIU Database and Internet World Stats website (http://www.internetworldstats.com/stats.htm).
Chart 7. Internet Penetration and Online Penetration Rate
Source: MasterCards Survey Findings conducted by IPSOS, EIU Database and Internet World Stats website (http://www.internetworldstats.com/stats.htm).
Chart 8. Security Concerns Inversely Correlated with Internet Penetration Rate...
85
80
75
70
65
60
55
50
45
400 10 20 30 40 50 60 70 80
Internet Penetration Rate (Percentage of Population)
O n
l i n e
S h o p p
i n g
P e n e t r a
t i o n
P e r c e n
t a g e
Australia
China
Hong KongIndia
Japan Korea
Singapore
Thailand
100
90
80
70
60
50
40
30
200 10 20 30 40 50 60 70 80
Internet Penetration Rate (Percentage of Population)
S e c u r i
t y C o n c e r n
L e v e
l
Australia
China
Hong KongIndia
Japan
Singapore
Thailand
Korea
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Higher Income Countries Tendto Have Higher Online Shopping Penetration
Chart 9 brings out the relationship betweenincome and online shopping penetration rates.Divergence from the trend in the case of Japanand Korea can be attributed to positive contri-butions from high internet penetration ratesand a culture favorable towards online shop-ping in these countries. The positive divergenceof China is a result of sample bias in the survey.In China, the sampled population is biasedtowards the higher income group, with thesampled average annual income at US$17,090compared to the countrys per capita GDP of
US$2,510 in 2007 (Table 6). With internet pen-
etration rate at merely 15.9% in China, it isclear that a majority of the sampled populationbelongs to the upper income end of the incomedistribution.
Note that such a sample bias towards thehigher income group is largest in India, whichhas the lowest internet penetration rate of5.3% in the region: it is the top income earnerswho constitute the majority of the online popu-lation in less developed countries with low inter-net penetration rates. Meanwhile, the negativedivergence observed in the case of Hong Kongis attributable to the negative effect from cul-tural factors.
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Chart 9. Higher Income Countries Tend to Have Higher Online Shopping Penetration
Source: MasterCards Survey Findings conducted by IPSOS
85
80
75
70
65
60
55
50
45
4015,000 20,000 25,000 30,000 35,000 40,000
Income Level (USD per Annum)
O n
l i n e
S h o p p
i n g
P e n e t r a
t i o n
P e r c e n
t a g e
AustraliaChina
Hong KongIndia
Korea Japan
Singapore
ThailandThailand
Table 6. Sampled Income versus GDP per Capita
AustraliaChinaHong KongIndiaJapanKoreaSingaporeThailand
35,49617,09025,07822,97727,66126,51031,32215,525
Country Sampled Annual Income (USD)
43,8202,510
29,0601,020
34,40019,83033,600
3,680
GDP per Capita (USD)
0.86.80.9
22.50.81.30.94.2
Sampled Annual Income/GDP per Capita
Source: MasterCards Survey Findings conducted by IPSOS and EIU Database.
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Cultural Factors Play a Big Role
Focusing on the survey where respondents wereasked their reasons for not making purchaseonline allows for a quantitative assessment ofthe effects of a cultural disposition to not shoponline. Percentages of the sample that gavespecific reasons such as concerns over securityor dislike of additional administrative and deliv-ery charges are excluded, and, instead the per-centage of sample in each country that simplypreferred going into a shop and physicallyinspecting the goods is analyzed. The reciprocalof this ratio is taken as an index of the culturalpropensity for online shopping. Chart 10 pre-
sents the results of this analysis. Clearly, cultur-
al factors in Hong Kong tend to be less favor-able towards online shopping activity comparedto other developed countries such as Australia,Japan and Korea.
Growth Potentialof Online ShoppingChina offers the largest potential online shop-ping market in Asia/Pacific with Indias marketpoised to expand rapidly in coming years. As of2007, China offers the largest online shoppingmarket in the region with an estimated onlinepopulation of 147.1 million which represents49.9% of the total e-commence population in
the region (Table 7).
Q2 2008 13
Chart 10. Australia, Japan, Korea: Most Favorable Cultural Affinity for Online Shopping
Source: Calculated by Centennial Group using MasterCards Survey Findings conducted by IPSOS.Note: The cultural factor is calculated using the reciprocal of the proportion of online population who prefer to shop offline in each country.
Table 7. Online Shopping Market Outlook
Australia
ChinaHong KongIndiaJapanKoreaSingaporeThailand
75.9
15.969.9
5.368.771.253.213.0
78.2
47.576.528.170.877.657.027.9
67.0
70.050.047.083.083.060.043.0
72.1
74.862.559.283.188.967.757.5
10.4
147.12.4
28.172.729.0
1.53.6
12.0
480.43.5
203.175.133.0
1.810.5
Country2007 2010 2007 2010 2007 2010
Internet Penetration Rate(Percentage of Population)
Online Shopping Penetration Rate(Percentage of Online Population)
Source: MasterCards Survey Findings conducted by IPSOS, UN Population Census and Internet World Stats website (http://www.internetworldstats.com/stats.htm).Notes: 1. For countries with low internet penetration rates like China, India and Thailand, we will extrapolate the average annual growth rate in 2000 to 2007 forward to 2010. The projected proportion of
urbanized population in the country in 2010 will be employed as a cap in this case. For more developed countries with higher internet penetration rates, we noted that the internet penetration rate tends totie intuitively to the proportion of certain demographic age group in the country. Therefore, we will project the internet penetration rates using demographic estimations by UN Population Census in 2010.
2. Online shopping penetration rate in 2010 is projected using an econometrical model with income level, internet penetration rate and the cultural factor as the independent variables.The cultural factor is assumed to remain constant in coming years.
0.025
0.020
0.015
0.010
Cultural Index: Online Shopping Propensity
Australia China Hong Kong India Japan Korea Singapore Thailand
Online ShoppingPopulation (Millions)
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The following developments in the e-commerceindustry in Asia/Pacific in coming years areexpected: Internet penetration rates of less developedcountries are likely to rapidly increase: Countrieswith low internet penetration rates, especiallyChina and India have seen significantly higher
online population growth during 2000-07(Chart 11). Along with the increase in domesticinfrastructure spending in the coming years,internet penetration rates in less developedcountries are poised to increase at an accelerat-ing pace and catch up with more developedcountries in the region.
14 MasterCard Worldwide Insights
Source: Calculated by Centennial Group using MasterCards Survey Findings conducted by IPSOS.
Chart 11: Countries with Low Internet Penetration Saw Stronger Internet Growth
Source: Internet World Stats website (http://www.internetworldstats.com/stats.htm).
1200
1000
800
600
400
200
0
0Internet Penetration Rate (Percentage of Population)
10 20 30 40 50 60 70 80 90
I n t e r n e t
G r o w
t h ( P e r c e n
t C h a n g e
2 0 0 0 t o 2 0 0 7 )
China
India
Singapore
Thailand
60
50
40
30
20
10
0
Chart 12: China to Lead the Region in Market Size While India Will Rise Rapidly
AustraliaHong KongJapan Korea
Australia China Hong Kong India Japan Korea Singapore Thailand
Online Shopping Market Share in Asia/Pacific
2007
2010
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The rising population of upper-middle-incomeurban elites will probably boost the onlineshopping markets in China and India signifi-cantly: Domestic consumption spending inChina and India is poised to pick up strongly,underpinned by a rapid pace of urbanizationand robust economic expansion in these twocountries. An increase in income level and arapidly growing population of upper-middle-income urban elites will contribute positively tothe online shopping penetration rate.
By 2010, Chinas online shopping populationis projected to increase to 480.4 million andcontribute 58.6% of the total online shopping
population in the region (Chart 12). Meanwhile,Indias online shopping population is poised toincrease rapidly and overtake Japan and Koreain terms of share of the online shopping popu-lation in the region.
In addition, China also offers the largestmarket in Asia/Pacific in terms of online shop-ping revenue turnover. As of 2007, revenueturnover in Chinas online shopping market wasestimated at a significant $297.8 billion which
contributed to 44.9% of total online shoppingrevenue turnover in the region (Table 8). Mean-while, India will rise strongly to emerge as the
Source: Calculated by Centennial Group using MasterCards Survey Findings conducted by IPSOS.
60
50
40
30
20
10
0
Chart 13. Online Shopping Market Revenue Shares in Asia/Pacific
Australia China Hong Kong India Japan Korea Singapore Thailand
Online Shopping Market Revenue Share in Asia/Pacific
2007
2010
Q2 2008 15
Table 8. Online Shopping Market RevenueTurnover in Asia/Pacific
37.3
1415.7
10.0
734.3
185.3
114.7
6.6
20.8
27.2
297.8
5.5
70.8
168.9
82.0
4.5
5.9
Australia
China
Hong Kong
India
Japan
Korea
Singapore
Thailand
Source: Calculated by Centennial Group using MasterCards Survey Findings conducted by IPSOS.Note: The projection is based on the assumption that the ratio of online purchases to income
for the respective country to hold constant during 2007-2010.
Country2007 2010
Online Shopping MarketRevenue Turnover (USD Billion)
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second largest online shopping market in theregion in terms of revenue turnover by 2010(Chart 13), underpinned by accelerating inter-net growth, rapid pace of urbanization and ris-ing spending power of urban elites in the coun-try.
Usage of Credit Cardsin Online ShoppingThere are several conclusions that can be drawnabout credit card usage in the context of onlineshopping in the Asia/Pacific region. First, thecredit card is the dominant and most preferredform of online payment method in most of
Asia/Pacific except in China and Thailand.Credit card penetration rate for online shop-
ping is estimated using the proportion of onlineshoppers who deem credit cards as their mostpreferred mode of payment for online purchas-es. According to the survey findings, credit cardsare by far the most preferred form of paymentmethod for online purchases in the Asia/Pacific(Chart 14). About 53% of Asia/Pacific shoppers preferusing credit cards almost double the 27%
who prefer using debit cards or direct debitfrom bank accounts. Direct debit from electronic transfers (9%),PayPal (3%), check card (3%) and cash (2%) arethe other payment options that online shoppersuse. China and Thailand are the only countrieswhere direct debit is more popular, with only25% of Chinese and 41% of Thai online shop-pers preferring credit cards as a paymentmethod. It is also interesting to note that conveniencestands in marked contrast as a critical factor indetermining the online populations choice of
preferred payment method in China and Thai-land. In the Asia/Pacific region, credit card pen-etration rate in online shopping is reported tobe slightly higher at 53% compared to 47% inoffline shopping.
Note that the credit card penetration rate inChina has some unique features amongAsia/Pacific countries, with only Thailand in asimilar situation, though to a lesser extent.There are several factors that could explain thisphenomenon, not least of all the lack of an effi-
16 MasterCard Worldwide Insights
Source: MasterCards Survey Findings conducted by IPSOS.Notes: 1. Others include all non-credit payment methods; namely debit cards, direct debit from bank accounts and electronic transfers, PayPal, Cheque card and cash.
2. The proportion of online shoppers choosing credit card as their most preferred payment method as showin the chart is also defined as the credit card penetration rate in e-commence in the respective countries.
Chart 14. Credit Cards Most Preferred for Online Payment in Asia/Pacific
Most Preferred Form of Online Payment in Asia/Pacific
Credit Cards
Others
100
80
60
40
20
0Australia China Hong Kong India Japan Korea Singapore Thailand APAC
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cient, reliable and widespread credit system inChina. Despite some recent attempts by author-ities to expand and modernize credit markets,the Chinese economy remains cash-centric,which our results reflect. The lack of a nationalcredit bureau, as well as restrictions on the abil-ity of foreign companies to issue cards in China,continue to hinder the growth of the creditindustry. A lack of merchant acceptance, espe-cially outside major cities, and poor infrastruc-ture mean that consumer use of this paymentsystem remains sporadic at best. However, withplans by the Chinese government to establish anationwide credit bureau, along with ongoingderegulation and increasing infrastructure inpreparation for events such as the 2008 BeijingOlympics and the 2010 World Expo in Shang-hai, it is reasonable to assume that the creditcard will see increasing acceptance as a form ofpayment among Chinese consumers.
Second, concerns over the security and safe-ty of online transactions are the main factorspreventing greater card usage. Increasing inter-net penetration rates, and the attendant rise inmore positive attitudes towards e-commerce
security, is likely to mitigate this problem some-what.
Table 9 shows in detail why online shopperschoose credit cards as their most preferred formof payment. While convenience tends to be themain reason, security remains weak as a reasonfor the use of credit card in e-commence. There-fore, consumer concerns about the security andsafety of their online payment transactions areone of the primary barriers to further adoptionof the credit card as a payment medium foronline shopping. As shown earlier, security con-cerns tend to be negatively correlated withinternet penetration rates in the country.Indeed, countries with high internet penetrationrates report higher credit card penetration ratesin e-commence compared to countries with lowinternet penetration rates (Chart 15). Countrieswith lower internet penetration rates tend tohave a more wary attitude towards the onlineshopping process. It is logical to assume that asthe internet penetration of a country increases,and the perception of its users towards thesecurity of online shopping improves, their dis-position towards card usage will likewise bemore positive. India is reported as the exceptionin this case which is partly attributable to thehigh level of impulsive spending in the coun-try discussed later.
Q2 2008 17
Table 9. Reasons for Using Credit Cards for Payment Online
Australia
China
Hong Kong
India
Japan
Korea
Singapore
Thailand
Asia/Pacific
26
70
41
29
30
42
27
69
37
Country
29
3
19
21
11
21
34
26
21
Convenience(Percentage)
15
14
16
8
37
15
19
8
18
Ease of Use(Percentage)
25
16
14
23
6
7
11
22
14
Promotional Offers(Percentage)
Security(Percentage)
Source: MasterCards Survey Findings conducted by IPSOS.
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Third, higher income levels tend to lead to ahigher credit card penetration rate in e-com-mence in Asia/Pacific. A positive relationshipbetween income level and credit card penetra-tion rate in e-commence is observed inAsia/Pacific (Chart 16). In other words, average
income seems to be a good indicator of the like-lihood of the credit card being used as a pay-ment method for online shopping, simplybecause higher incomes in and of themselvesenable greater credit card usage.
18 MasterCard Worldwide Insights
Source: MasterCards Survey Findings conducted by IPSOS and EIU Database.
Chart 15. High Internet Penetration High Credit Card Penetration Rates Go Together
Source: MasterCards Survey Findings conducted by IPSOS and Internet World Stats website (http://www.internetworldstats.com/stats.htm).
Chart 16. High Incomes Coincide With High Credit Card Penetration Rates
0 10 20 30 40 50 60 70 80
Internet Penetration Rate (Percentage of Population)
C r e
d i t C a r
d P e n e t r a
t i o n R a t e
( P e r c e n
t a g e )
Australia
China
Hong Kong
India
Japan
Singapore
Thailand
16,000 21,000 26,000 31,000 36,000
Income Level (USD per Annum)
C r e
d i t C a r
d P e n e t r a t
i o n
R a t e
( P e r c e n
t a g e )
Australia
Hong Kong
India
Japan
Singapore
Korea
Korea
70
60
50
40
30
20
80
70
60
50
40
30
20
China
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On average, 74% of the online shoppers inAsia/Pacific feel that payment security can beimproved and increase the confidence of usersin online transactions. This proportion is espe-cially high amongst shoppers in China and Thai-land, with 84% reported in both countriesrespectively.
Opportunistic Spendingin the Online Shopping Context
The level of opportunistic spending online varieswidely among countries in the Asia/Pacificregion. In countries which are somewhat more
mature financially such as Singapore, SouthKorea and Australia, only about 10% of shop-pers have made opportunistic purchases fre-quently. This proportion jumps drastically in lessfinancially sophisticated India, where about30% of shoppers do the same. Chart 17 illus-trates the frequency of opportunistic purchases
among shoppers in the various Asia/Pacificcountries. Despite the fact that the frequency ofChinese opportunistic buying remains low, withonly 19% claiming to regularly make purchasesopportunistically, compared to 21% for HongKong, 22% for Thailand and 30% for India, insheer numbers it is rivaled only by the latter.
First, online shopping does not trigger agreater tendency for opportunistic spending inmost of Asia/Pacific. For most of the region, thetendency to make opportunistic purchasesonline is either similar or lesser compared tooffline shopping (Chart 18). This indicates thatthe online medium has little effect on the con-
sumers tendency to buy opportunistically. How-ever, there is a significantly greater tendency toshop opportunistically online than offline inChina, India and Thailand relative to othercountries in the region. A higher tendencyto spend opportunistically online will tend toboost credit card usage in online shopping in
Chart 17. Frequency of Impulsive Purchases in Asia/Pacific
Q2 2008 19
Source: MasterCards Survey Findings conducted by IPSOS.Note: High frequency denotes most of the time or more; medium frequency denotes just a couple of times while low frequency denotes hardly ever or never. APAC refers to Asia/Pacific.
60
50
40
30
20
10
0
Percentage
Australia China Hong Kong India Japan Korea Singapore Thailand APAC
Impulsive Spending in E-Commence
High Frequency
Medium Frequency
Low Frequency
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these countries as unplanned spending is oftenfunded by credit cards.
Second, lower price compared to offline chan-nels is the key factor prompting opportunisticspending in e-commerce in Asia/Pacific. Across theregion, lower prices and discounts compared tooffline channels play the key role in encouraging
opportunistic spending online (Chart 19). Theavailability of unique products online is also anoth-er major factor that boosts opportunistic spendingin online shopping in the region. However, adver-tisement and promotions do not seem to con-tribute significantly in increasing opportunisticspending in Asia/Pacific.
20 MasterCard Worldwide Insights
Chart 18. Tendency to Shop Impulsively While Browsing Online
Source: MasterCards Survey Findings conducted by IPSOS
60
50
40
30
20
10
Percentage
Australia China Hong Kong India Japan Korea Singapore Thailand APAC
Tendency to Shop Impulsively Online Compared to Offline
Greater Tendency
Similar Tendency
Less Tendency
Chart 19. Lower Price/Discount Emerges as Key Trigger for Opportunistic Spending
Source: MasterCards Survey Findings conducted by IPSOS
100
80
60
40
20
0
Percentage
Australia China Hong Kong India Japan Korea Singapore Thailand APAC
Reasons That Trigger Impulsive Spending
Low Price/DisccountAdvertisement/PromotionsUnique ProductsOthers
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Third, the products that propel opportunisticspending in online shopping are mainly small-
ticket items. Chart 20 shows that the productsthat trigger opportunistic spending listed by thesurveyed respondents are mainly small to medi-um ticket items and services such as movies,
airline tickets and hotel accommodations. How-ever, note that big-ticket items like electronic
appliances are listed by the respondents as thesecond most common product which they tendto purchase on impulse.
Q2 2008 21
Source: MasterCards Survey Findings conducted by IPSOS
Chart 20. Products That Increase Impulsive Spending in Asia/Pacific Online Shoppers
Products That Increase Impulsive Spending
Insurance
Medicine/PharmaceuticalHealth and Fitness Products
Hotel AccommodationsMovie/Concert Tickets
Men's Clothing/AccessoriesAirline Tickets
CosmeticsPersonal Care and Beauty Products
GroceriesToys and GiftsBooks and Art
CDs/DVDs/VCDsHome Appliances and Electronics
Ladies Clothing/Accessories
0% 5% 10% 15% 20% 25% 30% 35% 40%
Percentage of Respondents
Case Study: India
Although only 47% of Indian internet usersshop online, they tend to be avid shoppers. Thesheer size of the Indian population means thatdespite an extremely low internet penetrationrate of 5.3% and a relatively small portion ofinternet users shopping online, the Indianonline shopping community still numbersaround 28 million, on par with South Korea,behind only China and Japan, and far ahead of
affluent nations such as Australia, Hong Kongand Singapore.
The Indian online shopping market is worthabout $71 billion. Indian online shoppers spendan average of $2,517 a year on online shopping,the fourth-highest amount in the Asia/Pacificregion, ahead of traditional big spenders such asJapan. In general, Indian online shoppers spendabout 11.0% of their personal income in onlineshops; a significant number as it is far higherthan the regional average of 9.8%.
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22 MasterCard Worldwide Insights
Online shoppers in India have a higher ten-dency to indulge in opportunistic shoppingonline than through traditional offline means.About 12.7 million Indian online shoppers feelthat they are more likely to make an impulsepurchase when browsing online than whenbrowsing offline. This equates to 45% of allonline shoppers in India, a figure that is muchhigher than the regional average of 33%. It isalso significantly more than the 30% who feelthat they are less likely to shop opportunistical-ly online than offline.
Online shoppers in India also make oppor-
tunistic purchases more frequently. Around30%, of online shoppers, or 8.5 million people,make opportunistic purchases most of thetime. This is the third-highest number of peoplein the region, and is only slightly less than the10 million Japanese online shoppers who fre-quently buy opportunistically. 30% of theonline shopping population is also a very highfigure when compared to the regional averageof 17% of online shoppers who frequentlymake online purchases. Indeed, Indian onlineshoppers have a significantly higher tendencyto opportunistic spend online across most
products compared to the rest of Asia/Pacific(Chart 21). Interestingly, online shoppers inIndia are most likely to make opportunistic pur-chases of high value items. Home appliances,electronic products (63%) and airline tickets(54%) are the most significant triggers foropportunistic shopping. Therefore, the valuesof the products that prompt opportunistic buy-ing in Indian shoppers are much higher com-pared to shoppers in Asia/Pacific.
Along the online shopping trend in theAsia/Pacific, Indian online shoppers are mostlikely to make an opportunistic purchase when
they encounter low prices or substantial dis-counts on prices compared to prices in offlinechannels. 74% of shoppers who have madeopportunistic purchase list this reason as animpetus for opportunistic shopping, the sameproportion as in Asia/Pacific. Indian onlineshoppers are also more attracted to uniqueproducts only available online than shoppers inthe rest of Asia/Pacific (Chart 21). In otherwords, Indian online shoppers are more easilyprompted to make online purchases than their
Asia/Pacific counterparts (Chart 22).
Source: MasterCards Survey Findings conducted by IPSOS
Chart 21. Indian Shoppers Higher Opportunistic Spending Across Most Products
HomeAppliances
andElectronics
Products That Encourage Impulse Spending
IndiaAsia/Pacific
CDsDVDsVCDs
Booksand Art
PersonalCare
and BeautyProducts
AirlineTickets
Men'sClothing
andAccessories
Movieand
ConcertTickets
HotelAccommodations
70
60
50
40
30
20
10
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ConclusionOnline shopping in the Asia/Pacific region is setto expand rapidly in coming years, underpinned
by rapid economic growth, with China andIndia to lead the region. In addition, internetpenetration rates in less-developed countrieslike China, India and Thailand are poised toimprove significantly as internet usage growsand associated infrastructure is developed in theregion: this will also boost online shoppingrates.
Credit cards are the most preferred methodof payment in the region for online shopping.Credit card penetration rate in online shoppingwill increase along with the increase in online
shopping penetration in the region. Securityremains the main factor hindering the growthof both credit card and online shopping pene-tration rates in the Asia/Pacific. But as appropri-ate infrastructure is put in place and customersbecome more comfortable with online shop-ping in the region, this concern will be mitigat-ed in coming years.
Q2 2008 23
Source: MasterCards Survey Findings conducted by IPSOS
Chart 22. Indian Shoppers are More Easily Triggered to Opportunistically Spend Online
Reasons That Encourage Impulsive Spending Online
IndiaAsia/Pacific
Low Price/Substantial Discount
Compared toOffline Channels
Unique ProductsOnly Available Online
Advertisementsand Promotions
Just Feel LikeBuying In GeneralWhen Browsing
Online
80
70
60
50
40
30
20
10
1. Opportunistic spending is defined as making anunplanned purchase or a purchase at higher value thanpreviously planned.2. Figures refer to US dollars unless otherwise stated.3. From State of Retailing Online 2007 report fromthe National Retail Federation (NRF) and Shop.org,quoted in CNNMoney.com 14 May 20074. See US E-commerce Forecast: 2008 to 2012 byForrester Research January 2008 quoted in e-marketer,
7 February 2008.5. Source: E-marketer 16 January 2008, quoting JeffreyGrau, eMarketer Senior Analyst.6. The survey was conducted by IPSOS Asia throughonline panels.7. If Online purchases = OLP, income = INC, personalconsumer expenditure = PCE and GDP is taken as a proxyfor income = INC, then (OLP/INC) divided by PCE/INC =OLP/PCE = intensity of online shopping spending.
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24 MasterCard Worldwide Insights
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MasterCard Worldwide InsightsOngoing research and analysis on global economicdynamics, business conditions and public policy challenges.
For additional copies of Insights or for additional infor-mation contact Ms. Georgette Tan, MasterCard Worldwideat georgette_tan @mastercard.com or you can visitwww.masterintelligence.com
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Third Quarter 2004How the Consumer Debt Bubble in KoreaCould Have Been AvoidedHow Comprehensive Positive Credit ReportingCould Enhance Capital Productivity in AustraliaThe Cost of Cash in Japan
Fourth Quarter 2004
Credit Card Outstanding and HouseholdDebt Myth and Reality
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2007First Quarter 2007The Sun Also Rises: Japans Long Term GrowthProspects and Regional Implications
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Second Quarter 2007Understanding the Affluent Consumers of ChinaHousehold Debt in Taiwan: An Analysisof the Consumer Debt CrisisSmall-Medium Sized Enterprises in SingaporeWomen Entrepreneurship in SingaporeAn Analysis of Household Debt in Singapore
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Fourth Quarter 2007China and Sustainable Economic GrowthOutlook for the Next 15 Years
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2008First Quarter 2008Brand Preference of the China AffluentUrbanization and Environmental Challengesin Asia/Pacific, Middle East and Africa Rankingof Worldwide Centers of CommerceChinas Dynamic Consumers the Young Singles
Second Quarter 2008
Trade and Economic Growth in Asia: The Paradoxof Globalization and DecouplingShocks and Resilience Hong Kongs DynamicHousehold Credit MarketThe Household Credit Market in Australiain the Short, Medium and Long TermResilience, Growth, and Demographic Challenges
26 MasterCard Worldwide Insights
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Q2 2008 27
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