Changing consumer habits are driving e-commerce treasurers to look at payment options beyond the standard credit and debit cards. In doing so, they are exploring ways to bring greater control of their cash flows into their own hands.
The changes are bred of necessity.
Karin Flinspach, head of cash products, transaction banking, at Standard Chartered, says: “The use of cards for e-commerce is shrinking, leaving corporates with no choice but to look into alternative payments.”
Worldpay’s Global Payments Report 2016 found that in 2015, 36% of e-commerce purchases in North America were made by credit card. It forecasts by 2020 this number will fall to 26%. In the same timeframe, debit card use will fall from 23% to 15% of all purchases.
In the face of falling numbers, corporates are looking at alternative payment options to keep hold of their market share.
The methods by which we are shopping are also continuing to change. Customers are shifting their purchasing habits towards mobile.
StanChart's Flinspach says: “E-commerce is a fast-growing industry, seeing 14% growth during 2014-2015. A lot of the growth is coming through mobile devices, with customers making small purchases.”
Ed Adshead-Grant, general manager at Bottomline Technologies, says developments such as this mean making payments through the interface of social-media sites are starting to emerge.
“Payment could be made through social-media sites, like LinkedIn," he says. "It does not need to be able to go through the bank applications and would sit on top of the existing site structures. Users trust these brands.”
StanChart has recently launched a payment processing service in China that taps into the consumer’s trust of certain social-media sites.
Says Flinspach: “We have launched an integration with WeChat and can collect via their app for our customers in China. WeChat links the mobile payment and the social-media platform. If shopping in store, customers can pay using a QR code.”
The emergence of PSD2 has a strong appeal for some corporates. It will enable funds to be taken directly from the customer’s account by the corporate itself. This would remove the uncertainty surrounding the timing of payments transacted through a third-party processor, such as a debit or credit card. It will give treasurers a greater overview of their balances.
Bottomline's Adshead-Grant says there are further benefits to bringing payments closer to home, explaining: “There is greater efficiency as the paper trail is called off. Through adopting legislation like PSD2 it can support the largest online companies to move into collecting payments directly with electronic billing.
“Having the access direct to the customer’s accounts will reduce the associated costs; it will be closer to pennies per transaction than the typical percentage of the whole transaction cost. It could also avoid the perennial risk of card fraud.”
Blockchain is being suggested as a potential method of payment collection that would also bring in the security of standardization.
Richard Jaggard, head of transactions banking, Europe, at StanChart, says: “Looking at the blockchain space, we can see what is being achieved by moving to an environment which allows greater standardization of information flows and settlement, using shared digital records across different networks and borders.”
Adshead-Grant agrees, adding: “We will also see the increasing move towards real-time and irrevocable payments. It will significantly reduce the time to clearing and the number of people involved in the process, reducing the number of errors and potential fraud with the focus on authenticating the users involved.”
Although it seems appealing, Conor Ogle, vice-president at Sapient Global Markets, notes that whether adopting such innovative methods will work for every company is very much unknown.
“With new developments, the industry needs to remember that just because you can, doesn’t mean you should," he says. "With the likes of blockchain, just because there is a proof of concept and others in the industry say it will technically work, if the process is confusing or unnatural to adopters they will not use it.”
Ogle cautions that changing how a company operates will mean creating more paperwork elsewhere.
“For any company that is considering going that close to the payments rails, they risk being regulated as a financial institution," he says. "That’s a major strategic undertaking, challenging the core competency of the organization.”
|Conor Ogle, Sapient|
Ogle says there are a number of established organizations that are trying to work out which aspects of regulation will apply to them, and it is not proving to be an easy process.
“For businesses intending to operate differently, they will have to run a new business context assessment, and determine which rules will apply to their future business model,” he adds.
Flinspach argues there is an element of guesswork needed from the treasurers in deciding which processes will prove successful, saying: “There is a challenge for our corporate customers in working out which payments options will take off with consumers, and which new players to take seriously. They need to really research all possible options and how they can integrate with them.”
Although customer habits are changing, there is the risk of moving too quickly away from the accepted payment methods.
Sapient's Ogle cautions there needs to be more consideration of how consumers themselves want to pay for their transactions, concluding: “I wonder if we are doing nearly enough as an industry to truly consider the customer point of view.
“The viability of new opportunities needs to cherish and respect the interactions between the individual user and the business, and not just that of the bank and corporate entities.”