Real-time payments poised to push the needle in ecommerce

Monday 6 September 2021 11:45 CET | Editor: Andra Constantinovici | Interview

Debbie Guerra of ACI Worldwide answers the latest burning questions on the state of global real-time payments in close tie with ecommerce, along with post-pandemic consumer behaviour and needs

ACI Worldwide provides a wide range of payment services and access to global and local payment methods: what trends have you observed in payment preferences in the last two years?

In ecommerce, there was already a dramatic shift underway in terms of payment preferences. Since the pandemic, even more shoppers have moved online and are comfortable with the digital experience. Now, more than ever, they expect to be able to pay the way they want. Many larger merchants have added to their more established payment methods portfolio with local payments methods, especially when expanding into new markets. The pandemic has also driven shoppers to look for new ways to pay. We have seen significant increase in Buy Now, Pay Later solutions, as people want more control over their available funds.

In the last few years, we also saw sustained growth in conventional payment methods, such as PayPal. PayPal grew almost 90% from 2019 to 2020, and from 2020 to 2021 the growth rate remained high, at almost 80%. If you compare that to Klarna, a popular Buy Now, Pay Later method, whose adoption rate raised about 50% from 2019 to 2020, but from 2020 to 2021 grew almost 450%. This significant increase in popularity of BNPL solutions was partly driven by the surge in online purchases of higher value items, such as home electronics.

The Buy Now, Pay Later market is experiencing a boom, with many new entrants in different markets globally. This means that for ACI, as a solution provider, we need to continually develop our offering to provide the right payment methods for our customers. For merchants, offering BNPL solutions opens an opportunity to attract a new customer base that they previously had no access to.

During the pandemic, we saw a lot of new consumers enter the ecommerce space. Have you noticed any differences in payment preferences between younger and older groups?

We found that older shoppers, such as baby boomers, showed a higher adoption of grocery ordering and delivery than before the pandemic. They are now comfortable with digital payments and expect a smooth experience, which means the UX is more important than ever for merchants.

And there is enormous growth in mobile payments and e-wallets among young consumers. For merchants, understanding and enabling the different payment methods that match their consumer preferences has become a critical way to ensure people want, and continue, to shop at their online stores.

E-wallet top-ups are still heavily driven by traditional credit cards, but we also see bank transfers growing in popularity, and as an integrated payment method.

Younger generations are less likely to avail of financial credit products. How do you see this trend evolving?

The real-time payment infrastructure is going to have a large impact on the shift away from cash towards digital methods for those consumers that are credit averse. The ability to link to online banking through an e-wallet provides the opportunity for merchants to reach this demographic. 

In the end, customers choose the payment method that best suits them. Amongst younger generations we see adoption of instant payments because of the budget control it provides; they are always quick to adopt payment methods that provide a benefit.

It also benefits merchants to accept real-time payments, both to meet customer expectations and from a liquidity management and margin point of view.

That ties neatly into our next question: what is the impact of the mass adoption of real-time payments globally on the development of ecommerce? What are the benefits for consumers and merchants?

A lot of the benefits of real-time payments for merchants have to do with the reduction of risk. Some merchants need to receive up-front payment before they dispatch goods, such as with high-value electronics. Receiving verifiable real-time payments can be a tremendous benefit for this type of merchant. Moreover, since COVID-19, merchants have had to redesign and develop new supplier relationships, and real-time payments can help accelerate this process. As banks expand their real-time payment services for B2B and corporate payments, to include things such as Request to Pay, merchants will find managing their supply chain and accounts payable/receivable much more predictable and efficient. 

For consumers, it is a little different: real-time payments provide the capability, particularly for those who are un- or underbanked, to fill up their mobile wallet. There will be some interesting evolution to watch between the account, the real-time payment, the wallet, and the demographic that will be tapping into that. When we think about markets with low card penetration, we see how quickly real-time payment services were adopted for ecommerce, because they are so seamlessly integrated into customer experience such as purchasing through social media or lifestyle apps. 

There is a lot of innovation happening to leverage the power of Open Banking and Instant Payments in ecommerce payments, yet in terms of the number of transactions, they are still small compared to traditional payment methods. How do you see this playing out?

Just like with anything new, there will be adoption trends. As real-time payments become more ubiquitous, transaction volumes are going to increase. Request to Pay holds real potential in Europe and can help smooth over some of the friction created in ecommerce with Strong Customer Authentication (SCA). The use of QRcodes or Request to Pay messages could create more seamless and secure payment experiences with less friction. It is interesting to hear bodies such as Pay.UK and Payments Canada emphasise that they are building their R2P solutions with cross-border interoperability in mind. These kinds of R2P messaging solutions are digital overlays to the real-time rails, running on the global ISO 20022 standard. With real-time payments, R2P can potentially even facilitate POS lending and instant funding to digital wallets, especially for underbanked communities. In markets where we see consumer-focused regulation and initiatives such as PSD2 and Open Banking making this possible, it is a question of when we will see mass availability of these kinds of services, not if. 

For merchants, there are real benefits of real-time payments, particularly when it replaces credit and reduces interchange fees. But that will also have to be balanced with the consumers’ preference, who might be very tied to their credit card and their ability to leverage their credit. Payment providers, such as banks and fintechs, will be looking to offer benefits beyond credit card points that resonate with consumers. The move to real-time payments is a rare opportunity to perform a competitive land-grab and win more share of the customer relationship. This is true for merchants too – they can create their own loyalty offerings associated with real-time payments in a move to grab more share of wallet.

This article is part of the Payment Methods Report 2021 – Latest Trends in Payment Preferences, a comprehensive overview of the payment methods in scope for 2021, as well as best practices for checkout optimisation and customer conversion by addressing digital transformation, security, and localisation.

About Debbie Guerra

Debbie Guerra is a seasoned payments industry executive with over three decades of experience spanning payments, fintech, consulting, and IT services. She leads ACI Worldwide’s Merchant and Payments Intelligence solutions portfolio, which encompass ecommerce, omnichannel payments, and merchant fraud. She has global business experience with merchant acquiring spanning direct and indirect channels, financial institution alliances, customer segments and verticals.

About ACI Worldwide

ACI Worldwide powers digital payments and banking for more than 6,000 organisations around the world. We have more than 45 years of payments expertise and customers in 95 countries. We serve 19 of the top 20 banks worldwide and more than 80,000+ merchants directly and through payment service providers. More than 5,000 organisations use our electronic bill payment solutions and 1,500 banks, intermediaries, and merchants prevent fraud with our solutions.

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Keywords: ACI Worldwide, real-time payments, instant payments, ecommerce, instant settlement, Open Banking
Categories: Payments & Commerce
Countries: World
This article is part of category

Payments & Commerce

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