Consumer Spotlight: Payments Powering E-Commerce

In the news

Payment wars have now hit the sports industry.

The market for software enabling e-commerce businesses to facilitate “one-click payments” has seen two of its biggest players in the news for very different reasons.

Fast, the San Francisco-based online payment company, announced on Tuesday that it would shut down operations due to a lack of profitability. The kicker – the company had raised over $120 million to date from Stripe and Index Ventures.

The company’s approximately 200 engineers will now be looking for new accommodation. Consumer finance company (specifically Buy Now Pay Later) Affirm has already hired 130 engineers from Fast following the announcement. While Affirm announced plans to create a one-click payment product, the company will continue to develop its core BNPL product, which is widely used in the fitness space by companies like Peloton, Tonal, Canyon and evo.

Then there’s Bolt. The “payment experience” company — Fast’s main competitor since the two rose to prominence in 2020 — recently announced two big deals with BigCommerce and Fanatics. The Fanatics deal will make Bolt the sole one-click payment provider to the world’s fastest growing sports merchandising company, accessing a network of buyers currently estimated at just north of 100 million.

The Bolt Network enables participants to shop securely with a single identity on a merchant’s site, removing login or password requirements and establishing an instant connection – and inspiring loyalty to the brand and customer loyalty.

In a world where the checkout page contains options ranging from Apple and Paypal to Amazon and Facebook, consumers demand the highest quality experience, and merchants need high conversion rates and low transaction costs. transaction. As the world increasingly shifts to e-commerce, checkout page solutions will become more important than ever.

Market Context

The battle for the payment page is on. The number of solutions has increased dramatically, with digital wallets competing with credit/debit cards, BNPL, crypto and one-click payment.

This is increasingly important for two reasons.

First, the shift to e-commerce. Over the past couple of years, consulting firm McKinsey has released comprehensive global payments reports outlining key trends in the space. In 2020, the story centered on how COVID accelerated the growing dominance of digital marketplaces such as Amazon, eBay, Etsy, and Shopify, which saw 70% to 150% growth in seller registrations. Marketplace sales accounted for 57% of all global retail sales, and the top 100 marketplaces saw nearly $2 trillion in sales, with 60 of the top 100 in the United States.

The 2021 report also highlighted the prevalence of e-commerce, particularly as it relates to small and medium-sized enterprises (“SMEs”). Amazon Marketplace, eBay, Etsy, Walmart Marketplace and Wayfair continue to capture a significant share of SMEs and micro businesses that are turning to e-commerce. According to the report, 50-70% of digital commerce will take place on these platforms by 2025.

With some protracted data related to consumer behaviors, the shift to digital from cash appears to be more entrenched than ever. Cash payments decreased by 16% globally in 2020, while real-time payments increased by 41% globally in 2020 alone, mainly in favor of contactless wallets and e-commerce facilitation .

“The pandemic has reinforced major shifts in payment behaviors: decline in cash usage, migration from in-store commerce to online commerce, adoption of instant payments. These shifts are creating new opportunities for payment players; however, it is unclear which are permanent and which are likely to return – at least partially – to previous trajectories as economies reopen. Nevertheless, the long-term dynamics seem clear.”

McKinsey Global Payments Report

What does the move to e-commerce mean? For starters, payment methods will radically go digital to an even greater extent than what we saw in 2021. Data from FIS Worldpay shows the predicted growth of global payment methods and point-of-sale.

Stripe dominates the checkout market with 66% of the total market share, per BuiltWith. Checkout buttons drive a large portion of e-commerce checkout volume due to their ease of use. According to PYMNTS, consumers fill out an average of 23 fields of information to make a single online purchase that takes an average of two minutes. The data also showed that Buy Buttons reduced online checkout times by around 40%. Additionally, on average, nearly 70% of online shopping carts are abandoned, with 21% of respondents saying they abandoned because the checkout process was too complicated.

Digital wallets, BNPL, and universal (or one-click) payment are currently live to dominate the payment page.

Digital Wallets: Digital wallets include service providers such as Amazon, Apple, Google, Venmo, Zelle and PayPal and make it easy to use information from these providers. These companies use transaction information from off-platform purchases (think Amazon’s checkout on a custom e-commerce website) to build their existing customer profiles, which consumers have indicated they are not. not too happy.

When it comes to automatic payment methods, companies like Apple and Google have clear advantages over iOS and Android, respectively. Additionally, Morgan Stanley found in 2019 that PayPal’s payment button was present on 369 of 477 major internet retailer websites – Amazon Pay, the closest, had 64.

Besides,

BNPL: The BNPL option benefits both merchants and consumers. This can help increase average order value for the former and spread purchasing costs over a longer period for the latter, helping to attract a younger demographic of shoppers with lower credit card penetration. credit. BNPL is increasingly being used for higher priced items in the health and wellness industry from brands such as Peloton, Tonal, Mirror, Canyon and Giant. By early 2021, when Affirm had over 6,500 merchants, a third of its revenue came from Peloton.

While BNPL is certainly beneficial for both merchants and consumers, it has its drawbacks, namely credit risk. There are no rigorous credit checks, so consumers have the flexibility to spend beyond their means without credit protection. In the future, if BNPL companies seek to compete for the coveted payment page, they will likely be required to report their purchases to credit bureaus, potentially crowding out younger users.

One-click payment (universal): Universal Payment Solutions is a one-click, cross-merchant solution to expedite the checkout process for consumers. Unlike the one-click options offered by Apple, Google, and Amazon, companies like the aforementioned Fast and Bolt allow users to create a secure, platform-independent profile between retailers. Bolt provides an example of how this technology can be used in a B2B context.

Bolt has built a “payment experience platform” that sits on top of an e-commerce company’s existing platform. According to the company, their prompt payment can lead to a 60% increase in conversion for merchants. Targeting independent online retailers allows it to capture the network effects of customer purchases. According to the company, 93% of their online retailers made cross-network purchases with a 63% increase in conversion, and nearly 20% of all Bolt transactions are network-focused.

Funding

The payments market is large and continues to grow. According to data from PitchBook, the estimated market size of the global payments industry reached $2.1 trillion in 2021, based on payment service provider revenues. PitchBook also estimated that industry revenue will exceed $3.1 trillion by 2026, a CAGR of around 7.8%.

Private markets have also been active in payments. Venture capital activity hit its highest total ever in 2021 by a wide margin. The year brought in $33.8 billion in funding, almost triple the amounts in 2020 and 2019.

Interestingly, large payment incumbents such as Visa and Mastercard are among the most active investors in the space.

Going forward, there are several areas where payment companies have the ability to impact global e-commerce, like Bolt did with Fanatics. Two areas that stand out in this space are payment aggregation systems and cross-border payments.

Considering the total number of payment solutions, aggregation systems will be next on the list to help merchants get the most out of their customers (like with Rapyd). Additionally, companies operating with international customers require significant cash management and sophisticated currency risk management. Solutions to the SMB problem with managing multiple payment streams across international borders will be a big opportunity in the e-commerce space in the future (like with Veem).

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