Over the last ten years, the retail e-commerce ecosystem has undergone a wide-ranging transformation. As recently as 2010, the e-commerce and payments value chain was relatively straightforward: Any eCommerce merchant could integrate a payment processor’s front-end HPP into their checkout or perform a deeper API integration for a customised checkout experience. The customer then enters their card details or other bank details, which were passed to payment platforms and schemes for processing. In 2020, we are now well into the era of open banking and things look very different.
The volume of payments has exploded. By 2018, global digital payments were worth US$3,417.39 billion [1]. This is expected to increase to US$7,640 billion by 2024 [1]. Using integrated real-time payments systems — which incorporate everything from authentication through settlement to confirmation — consumers send and spend money in the blink of an eye. And the speed and volume of transactions are made possible by the increased use of technology and artificial intelligence to do everything from risk assessment to anti-fraud measures.
But this very visible — and much written about — transformation is not the only way in which the payments and e-commerce landscape has been changing beyond recognition. Because while e-commerce over the last ten years has gone increasingly global, the way people pay online is more than ever local. In some markets, low rates of financial inclusion make cash-voucher schemes the best option. In others, bank-transfer apps are the most popular. Some markets prefer e-wallets or primarily use locally issued credit cards. In the Nordics, deferred payment methods are becoming the norm.
The result is a global online and digital payments market that is now incredibly diverse. And even more complicated. Even markets right next door to each other may have very different payment preferences. In Latvia, for instance, 49% of online transactions are paid for using a credit card [2]. In neighbouring Lithuania, it’s just 24% [2].
Globally, by 2021, only 15% of all transactions will be paid for using the brands of credit cards familiar to most Western merchants [2]. That number is only set to decrease.
Already, Klarna, one of Europe’s most popular bank-transfer and pay later app, processes €53.4 billion in online payments every year. Merchants operating in or entering Europe which don’t support Klarna are effectively saying that they’re not interested in any part of that €53.4 billion. And this situation is not unique; it applies in markets throughout the world.
Local payment methods, as they drive financial inclusion, will only proliferate.
When we look forward to the state of e-commerce in 2030, personalised shopping experiences are not a nice-to-have. They are an absolute requirement. Enabled by systems of insights and intelligence, even small, independent retailers will be able to cater to the most specific of customer preferences, including offering the payment methods their customers like best.
The best brands do this already. Those who don’t adapt to open banking will struggle to make it to 2030.
[FOOTNOTES]
2. Original PPRO research
