5 ways digital payments are most disruptive in e-commerce

As the e-commerce channel expands its share of total retail sales worldwide, it’s often thought that credit and debit cards are the primary beneficiaries. Clearly consumers can’t write paper checks for most purchases at digital stores, so other instruments are likely to be used. However, depending on the country and consumer habits, cash still remains a viable payment option for e-commerce transactions — with the help of a third party to handle the payment.

Additionally, the two main Chinese mobile wallets, Alipay and WeChat Pay, are seeing strong consumer demand for use in-stores. Similarly, the Indian e-wallet Paytm is experiencing rapid adoption in physical stores and at food carts, where retailers have been slow to adopt credit and debit cards due to their high interchange fees.

While e-wallets have been available in some markets for decades, their popularity and ubiquity has only really flourished in the last five to 10 years. Arguably one of the first and still functional e-wallets, PayPal, was favored in the 1990s to enable consumers to make e-commerce purchases on the eBay digital mall. Since then other wallets have come to market and achieved moderate to high levels of success, depending on the country.

The Chinese e-wallet Alipay followed the PayPal path to success, as it was created by Alibaba Group to enable Chinese consumers to shop at Alibaba’s Taobao online shopping mall. Alternatively, its competitor WeChat Pay was created based on the huge popularity in China of the WeChat messaging app. Having such a huge consumer bases allows merchants to be able to tap into a large portion of the country’s population that does not have a credit or debit card.

Today, e-wallets are used for almost half of China’s e-commerce sales and are crossing over to the physical point of sale. According to a recent PPRO and Amadeus Travel Payments Study, e-wallets account for at least one-fifth of total e-commerce sales in seven of the ten largest global economies. However, in Japan, the third-largest global economy, e-wallets make up barely 2% of all e-commerce volume.
Possibly a desire to avoid getting into credit card debt or simply just preferring to pay with ready funds in an existing bank account, Dutch, German and Malaysian consumers are strong users of bank transfer payments for digital purchases. Another factor that comes into play are the high acquiring and interchange fees typically associated with payment cards.

In the Netherlands the favorite local payment option is iDEAL, which is run by the Dutch bank-led association called Currence. In Germany the preferred alternative payment option is called Sofort, which provides for immediate bank transfers when making online purchases. Sofort was acquired in 2014 by Swedish lender Klarna.

The practice of using bank transfers to make e-commerce purchases is popular in only a handful of countries, according to a recent study by PPRO and Amadeus. In most other countries, penetration rates range from single digits — such as 4% in Brazil and 8% in the USA — to 11% in Belgium and 17% in India.
One major challenge in gaining broader adoption of bank transfers for e-commerce shopping is the fact that a large portion of the world’s population is unbanked.

According to the World Bank’s Global Findex Database, almost a third of the world’s adults were unbanked as of 2017. Globally, this translates to 1.7 billion people without a bank account from a financial institution or regulated mobile money provider.

While the number of unbanked consumers still remains very large, it has declined considerably in the last few years. The number of banked consumers has reached 69% in 2017, up from 62% in 2014 and 51% in 2011.

There are significant inequities in account ownership between men and women, as well as between high income economies and developing economies. Globally, 72% of men have a bank account, as do 65% of women. This 7% gender gap was also present in 2014 and 2011. In high income economies 94% of adults are banked compared to just 63% of adults in developing nations. Nearly half of the unbanked live in just seven countries: Bangladesh, China, India, Indonesia, Mexico, Nigeria and Pakistan

The big driver in the rising number of banked adults has been the strong popularity of mobile money accounts, particularly in Sub-Saharan Africa. Providers such as M-Pesa have gained a significant number of accountholders in countries such as Kenya, Tanzania, and South Africa.
When it comes to making online purchases in some countries, there’s often a need to visit a convenience store, money transfer agent, post office or bank to deposit cash for the purposes of completing the transaction. In countries such as the Philippines and Saudi Arabia, almost half of e-commerce purchases are done with cash, according to a recent study by PPRO and Amadeus.

In Brazil, the government has created a specific cash payment method called Boleto Bancário that enables virtually anyone to make a cash payment for internet purchases. When Brazilians make online purchases from digital stores they have the option to use the Boleto Bancário payment method in addition to cards. When choosing this option, customers are provided with a prefilled Boleto Bancário payment slip. The customer can print the slip and pay it with cash at any bank branch or at authorized processors such as drugstores, supermarkets, lottery agencies and post offices.
Despite the adoption of alternative payment methods in many countries, credit and debit cards still maintain a strong position when it comes to internet purchases. According to a recent study from PPRO and Amadeus, Canadians and South Koreans use payment cards to conduct almost three quarters of their internet purchases.

In the U.S., where the Consumer Financial Protection Bureau reports that Americans had a total of 659 million open credit card account in 2017 with an open line of credit exceeding $4 trillion, payment cards (including debit) captured 57% of internet purchase volume. In the U.K., where similarly high credit card ownership rates exist, payment cards are able to capture only 50% of e-commerce purchase volume due to the growing presence of e-wallets.