Digital Commerce Is Causing Payments to 'Disappear'

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As the path to purchase becomes increasingly more digitized, the act of executing the payment transaction has shifted further and further into the background.

Unlike never before, the payment transaction has become just a period at the end of the sentence. There are many factors pushing payments into the background, but the ascension of the smartphone to its status as one of the most popular consumer devices on the planet has been a major driving force behind this disappearance act.

Although transactions made via mobile devices are on the rise, the conversion rates on mobile are nevertheless woefully low. When it comes to making purchases via mobile devices, a number of barriers continue to hinder adoption.

While respondents in Euromonitor International’s Hyperconnectivity Survey noted security and privacy concerns as one of the top barriers to mobile shopping, many of the reasons centered on the commerce experience that specifically would tie to these device types.

Namely, respondents pointed to the mobile phone’s small screen size, the time it takes websites to load and general inconvenience when it comes to shopping on these devices. All these frustrations were much more pronounced among mobile phone shoppers as compared with tablet shoppers.

Given the challenge for consumers of being able to easily enter payment details on small devices, many companies are attempting to eliminate the friction that occurs during the digital path to purchase.

Digital wallets, such as Visa Checkout and MasterCard’s MasterPass, store consumers’ payment information in the cloud or on a remote secure server in order to reduce the steps to purchase. Amazon and PayPal also allow users to enter their log-in details to streamline the online purchase process. As of 2014, the percentage of internet sales made through tablets and smartphones amounted to 18% of all internet retail purchases in the 80 retail markets researched by Euromonitor International.

Another factor driving these invisible payments trends are mobile-specific apps, which have found success by cutting down on the number of steps between browsing and buying. Apps like Uber and Airbnb have been frontrunners of this integrated commerce concept. Unbeknownst to many first-time mobile payment users, these types of mobile apps have given momentum to the up-and-coming payment method. In the case of Uber, the mobile app enables consumers to request and pay for a ride with a single click on a smartphone. Avid users rave about the simplicity of the app both in terms of hailing and paying for rides any time of day or night.

Braintree, which is behind this simplified payment, first made a name for itself because it was able to manage the complicated process between app developers and payment processors to make the payment appear seamless on mobile devices. Braintree’s product became especially popular among merchants because its payment acceptance platform could be up and running in minutes, rather than the weeks it might take giant vendors like Chase Paymentech. Braintree powers payments for thousands of fast-growing e-commerce companies, including Uber, Airbnb, Stubhub, Lyft, Basecamp and DogVacay. This type of frictionless payment experience has become so desirable in this new mobile world that PayPal acquired it in late 2013.

Automatic purchases may very well be the final step in making the payment transaction entirely invisible to the end-consumer.  For example, Amazon’s Subscribe and Save program is a service that allows consumers to select the goods they would want on a monthly basis. As a benefit, consumers receive free shipping and save 15% on the entire order when they are enrolled in five or more subscriptions. It is just another way that Amazon is helping to eliminate the fiction that occurs between browsing and buying. Its most recent push towards frictionless payments comes in the form of the Amazon Dash Button, which allows users to reorder products, such as Tide laundry detergent, by pushing the plastic button. The device, which can be affixed to a washing machine, a nearby wall or other areas of the home, communicates with the Amazon app on the users’ smartphone via a Wi-Fi network.

Undoubtedly, the payments industry is in the midst of a generational shift that is pushing payments into the background. As the payment transaction increasingly becomes more of a commodity, greater attention is being placed on the elements around the payment transaction instead. In fact, many payment providers are beginning to come to terms with the fact that the payment transaction may just be that final check-box at the end of the purchase decision and that in order to remain competitive they will have to surround the payment transaction with ancillary services.

Michelle Evans is consumer finance senior analyst at Euromonitor International.

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