Ecommerce competition is heating up globally, with giants Amazon, Apple, Alibaba, Tencent and eBay all vying for bigger stakes in the market. Retail sales are expected to surpass $27 trillion by 2020, and ecommerce is expected to account for more than $4 trillion of that figure.
One key area that is becoming the next battleground for these companies is payments. Payments may seem to be an inherent part of ecommerce platforms that facilitates the checkout process. However, the boom of financial technology (fintech) has made payments a major segment in financial services, creating major opportunities for these businesses to tap into wider markets.
Building ecommerce ecosystems
Ecommerce isn’t about who has the biggest inventory or who provides overnight shipping anymore. It also isn’t simply about a single defining feature or functionality in a website or an app. It’s about who can provide the best customer experience. In order to deliver this, retailers need to build up capabilities across all fronts: products, price, user experience, logistics, support and, of course, payments.
Forget platforms. Forget application suites. It’s about building ecosystems.
What’s emerging as a critical component of today’s ecommerce ecosystems is payments. Customers demand a quick, secure and convenient way to pay for purchases. According to marketing automation platform GetResponse, complicated checkout processes, card security and not having enough payment methods are all factors in shopping cart abandonment.
Interestingly, there is no one-size-fits-all solution to payments, as each market would have its own take on payment methods. The U.S. relies on cards to fund digital wallets. In China, they transfer funds directly to phone accounts. In some parts of Europe, bank transfers are preferred. In parts of Asia with low banking penetration, cash is still king.
This can be quite the conundrum for cross-border and international ecommerce. While it is ideal to be able to support a wide array of payment methods, displaying all payment options can still affect the flow of the checkout process. Checkout pages need to be deliberately designed to be simple and easy to use. However, in the greater scheme of things, usability is just a minor issue that can be addressed through careful user experience design.
Beefing up payment processing
Of course, offering a variety of payment methods wouldn’t be much of an issue if there were one dominant payments service across all markets. Hence, the mad rush to establish footholds for their brands’ payment services.
eBay has had the greatest success integrating a payments service into its ecommerce business with its acquisition of PayPal in 2002. PayPal has gone on to become a payments processor giant, powering ecommerce platforms besides eBay. Eventually, PayPal spun off as an independent entity in 2015.
While supporting their own ecommerce operations is important, the bigger picture for these ecommerce companies is to be able to offer their services as a platform for use by other businesses—much like how PayPal is used by thousands of businesses outside of eBay.
However, PayPal’s years under eBay arguably stunted PayPal’s growth, allowing other players such as Google and Apple to launch their own digital wallets and even traditional card companies like Visa and MasterCard to make their plays in the growing fintech scene. Alibaba and Tencent also have their own payment services.
All are pushing other ecommerce platforms to use their service, even resorting to buying into these companies. In India, online store Flipkart got a massive boost after getting a new funding round from Tencent, Microsoft and eBay. Amazon, Flipkart’s biggest rival in India, is trying to fight this. Amazon recently got approved by the Reserve Bank of India for its mobile wallet service, which means it can process payments beyond the Amazon store.
In Southeast Asia, popular ecommerce platform Lazada was acquired by Alibaba along with it Lazada’s payment service HelloPay. And recently, HelloPay announced it will soon be operating as Alipay under Alibaba’s Ant Financial arm.
It is quite fascinating, to say the least, how aggressive these companies are to shore up their payments services despite the low banking penetration and the preference for cash on delivery as fulfillment method in these markets. But a growing lesson in tech is that there’s nothing as “too early” these days.
Towards a cashless future
Payments isn’t simply about facilitating transfer of financial value between merchants and consumers anymore. Payment services have become non-banks, carrying billions of dollars in funds in their systems. Even banks have realized the threat of payment services to the banking industry. With the value of funds stored in their accounts, it’s possible for payments services to spin off into other financial services, such as lending, foreign exchange and funds.
While a major consideration for ecommerce giants to enhance their payment processing capability is inherent in their needs, their payments service could be spun off for opportunities in financial services. If an ecommerce service becomes the preferred retailer in the market, then there is a good chance for their payment service to be the preferred service, as well. It’s a race to establish ecosystem dominance. Imagine the position these ecommerce giants would be in if they could control the goods and the money in the market.
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