B2C ecommerce today
In the last two years, the COVID-19 pandemic has dominated global economic development. Government restrictions on movement and other interventions to protect the health of the public had a significant impact on economic activity across the entire retail sector. Just as we started to see the end of the fight against the virus in 2022, the Russian invasion of Ukraine has had a further effect on global supply chains. The biggest impact has been on gas prices and on other products, such as food and materials for computer chips. Economic emergencies are an inevitable outcome of war, as global industries will experience disruption and instability.
Many of the leading ecommerce brands, such as Amazon, Apple, ASOS, Ikea, H&M, Nike, and Uniqlo have suspended their operations in Russia. There are many more brands and retailers that have pulled out of the Russian market. This will only have further repercussions in terms of sales, capital, manufacturing, and costs for these global businesses.
B2C ecommerce is facing disruptions due to the conflict, everything from the sourcing of products to the delivery to consumers. Moreover, the consumer mindset and consumption of ecommerce services have started to be impacted. The global economy is predicted to shrink, rather than grow.
For ecommerce, a key question is whether the pandemic or the Russian-Ukrainian war will have a long-term impact on strategic investment and growth. What is undisputable is that ecommerce growth will not be as great as the pre-war predictions. However, COVID-19 did and will continue to have an impact on retail. The role of the physical store has changed forever, and the digital channel will shift from playing a supporting role to being fundamental for most retailers.
Since 2018 through to 2022, B2C ecommerce in all regions has enjoyed a double-digit growth. Nevertheless, 2022 is a turning point. Although ecommerce growth will continue to outstrip sales growth in physical retail locations, we expect only the Middle East and African region to achieve 13% CAGR (2022 to 2026), whereas all the other regions will have 7% to 9% CAGR.
Consumer behaviour is customarily slow to change when it comes to payment preferences, and it took a pandemic for consumers to adapt their shopping habits. We have already seen that consumers and merchants have been forced to change their behaviours, adopting new electronic payments and shopping online for groceries. Some demographics, such as the elderly, are typically fearful of sharing their payment details online. The pandemic has been the tipping point when we experienced a significant upturn in the number of unique and new consumers shopping online.
Digitally connected consumers are readily exposed to numerous social media channels and an array of online platforms and marketplaces. As a result, retailers are now adopting a connected commerce strategy and placing greater importance on digital customer journeys. The ecommerce channel will be central for many retailers in the future so that they can be best positioned to serve their rapidly growing segment of connected consumers.
Alternative payment methods (APMs) are here to stay, and the number of APMs will continue to grow. Globally, there are probably over 400 different APMs. These can then be further categorised into groups of payment methods such as, domestic card networks, closed-loop prepaid cards, stored value accounts, bank transfers, direct debit, real-time direct debit, pull-payments (‘Request-to-Pay’), push-payments, e-wallets, mobile payments, cash on delivery, e-invoices, Buy Now, Pay Later (BNPL), etc. Undoubtedly not an exhaustive list, but consumers will continue to try out and make different APMs their preferred method.
Application Programming Interfaces (APIs) will allow for the simple and standardised exchange of data between two software applications. In Europe, a key element of the second Payment Services Directive (PSD2) is access to bank accounts. This is effectively the ‘APIzation’ of bank accounts that, until now, were concealed behind a security firewalls. APIzation is one step towards Open Banking, led by Europe, with North America quickly catching up. Other markets are paying close attention, and in the next five years, Open Banking will be widespread. B2C ecommerce will be the first channel to benefit.
Irrevocable real-time bank transfers will be the preferred and most optimised payment method in certain B2C ecommerce scenarios. Internet connected devices (or IoT – the Internet of Things) is one area where real-time payments will be the ‘Appropriate’ Payment Method. These types of payments will not just be faster, but cheaper for the retailer and more convenient for the consumer. We have already seen such payments in China with super apps like Alipay and WeChat. In other regions, for example Africa, mobile wallets that can be used across different mobile network operators will continue to facilitate real-time payments and to be the preferred digital payment method for B2C ecommerce. Also LATAM countries have been increasingly embracing real-time payments. PIX in Brazil, Yapeis in Peru, CoDi in Mexico are all moving or have gone beyond person-to-person (P2P) payments into mainstream B2C ecommerce.
One frontier for B2C ecommerce will be the metaverse. Conducting commerce in the metaverse has raised an important question at EDC – could the metaverse be the place where an entirely new set of payment methods and payment rails might be built from scratch? It seems that the metaverse is pleading for a new currency, specifically designed for the new world, and not coming from the old world. Blockchain technologies, cryptocurrencies, and non-fungible tokens (NFTs) have been poised to be the recognised foundation for all commerce in the metaverse.
Firstly, there remains the need to simplify digital transaction mechanisms and to reduce entry costs to incentivise adoption by underbanked or underserved merchants and consumers that do not have access to mainstream financial services. Secondly, international digital supervision is needed to ensure robust security for all ecommerce transactions. This will help address the concerns with cybersecurity and consumer protection, regardless of their social or economic situation, age, or whether they are tech-savvy or tech-illiterate.
This editorial piece was first published in The Paypers' Cross-Border Payments and Ecommerce Report 2022–2023, which taps into the fast-growing cross-border market and provides a comprehensive overview of trends and developments that are pivotal in this space, being the ultimate source of information for ecommerce businesses interested in expanding globally.
Mark Beresford is a Director at Edgar, Dunn & Company (EDC) and has over 30 years of strategic consulting experience in the payments sector. He is responsible for the company’s Retailer/Merchant payments practice, working with omnichannel merchants and payment service providers across the globe.
Edgar, Dunn & Company (EDC) is an independent global payment and fintech consultancy. The company is widely regarded as a trusted adviser, providing a full range of strategy consulting services, expertise, and market insights. EDC expertise includes M&A due diligence, legal and regulatory support across the payment ecosystem, fintech, mobile payments, digitalisation of retail and corporate payments, and financial services.
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now