5 minute read
The date is July 5, 1994.
Mariah Carey is number 1 on the German album charts. High-waisted jeans and white LA Gear sneakers are the height of fashion. And an unassuming young man called Jeff Bezos is about to revolutionize the retail industry from his parent's garage in Bellevue, Washington state.
We all know how this story ends.
Today, Amazon is the most valuable brand in the world.
More to the point, it has become impossible to imagine not being able to shop online.
In the 12 months between 2020 and 2021, 74% of EU residents made at least one internet purchase. And, by 2026, 564.4 million Europeans will be shopping online — up from 476 million in 2020.
But while e-commerce looks like it's on an unstoppable growth trajectory, it's not all sunshine and rainbows.
Yes, demand is growing and composable technologies — interoperable apps and online infrastructure — have made it easy and affordable for anyone to start an online store and tailor it to their requirements. But tight competition and Amazon's dominance are shrinking profit margins and making it harder to secure repeat business.
The good news is that it's very much possible to build stronger relationships with customers and boost your bottom line, even in an ever more saturated market.
And fintech is at the heart of how merchants can make this happen.
Fintech has been integral to e-commerce from day 1.
Where anyone with enough cash in their wallet can walk into a bricks-and-mortar shop and buy whatever they want, e-commerce is impossible without trusted digital payments.
Customers must be able to pay from their computer — or, increasingly, from their mobile devices — safe in the knowledge that the merchant will live up to their end of the bargain.
By the same token, merchants need to be able to verify customers' identity, take payments, and process deliveries, returns, and refunds without ever interacting with them face-to-face.
Over the past 28 years, the technologies that power e-commerce have advanced by leaps and bounds. But merchants' and customers' needs and expectations have evolved too.
Customers are more aware of fraud risk than ever before. At the same time, they value speed, choice, and convenience. Almost 80% of online shopping carts are abandoned. And the top reasons include not being able to pay using a preferred payment method and slow or complex checkout processes.
Of course, the other side of the coin is that striking the right balance between speed and convenience on the one hand and security on the other is tricky. Greater security inevitably adds some friction, which increases cart abandonment. But streamlining the payment process too much may weaken security, which undermines trust.
Similarly, while offering several different payment options is critical in this day and age, it can be costly for merchants and challenging to manage.
While the fintech industry has been continuously evolving for more than two decades, it has recently made a quantum leap.
Maturing digital technology, huge amounts of investment — global funding hit $91.5 billion (approximately €85.7 billion) in 2021 — and smarter regulation have enabled the industry to innovate at a rapid pace.
So which are the most exciting emerging financial technologies from an e-commerce perspective?
And how can they help merchants deliver faster and safer payments, and strengthen their relationships with customers?
Of all the recent developments in fintech, embedded finance is, without a doubt, the most potentially transformational.
Embedded finance makes it possible for merchants to integrate financial products — a branded credit card, digital wallet, or buy now pay later loan, for instance — seamlessly into the ecommerce user journey. And, this is hugely beneficial for both merchants and customers, for three key reasons.
1. It's simpler and more convenient
Because embedded finance products are integrated into the user journey, the customer deals directly with the merchant and can complete payment without being redirected to a third-party website.
The result is a smoother, more seamless experience.
The merchant can retain their branding, so there's more trust and less risk of confusion.
More importantly, merchants can customize the flow, including streamlining the number of steps required to complete payment, so there's less friction and fewer opportunities for customers to get frustrated and abandon their purchases.
Samsung's branded virtual debit card, for instance, which they developed in partnership with Solaris, enables anyone to pay for their online purchases instantly with a swipe of their finger, regardless of who they bank with. They can also split any purchase worth €100 or more into installments, enabling them to spread the cost of bigger purchases over up to 24 months.
Best of all, the technology makes sense for the customer and for merchants too. There's no complexity at the front-end, because it's all taken care of by a specialist in the back end.
Integrating the BankIdent technology from Solaris, for instance, made it possible for Samsung to onboard thousands of customers quickly and securely completely online. All a user has to do is approve a small transaction and confirm registration with a digital signature.
2. It's more secure
Because the back end is taken care of by a fully-licensed third party, the merchant can focus on making the process as simple, straightforward, and convenient for the customer as it can possibly be.
There's no need for them to pivot part of their operations towards financial services. The embedded finance provider takes care of know-your-customer checks, fraud monitoring, ongoing compliance, and other technicalities, guaranteeing a safe experience for customers.
3. It creates stickier long-term relationships
Embedded finance is an opportunity to create new revenue streams, boost loyalty, and encourage larger purchases.
Case in point, consumers could have the choice of paying with the merchant's branded debit card or credit card. The merchant would earn a portion of the interchange fees while the customer benefits from loyalty points and other perks.
And, all the while, because the card is branded, the merchant is in the customer's mind even when they transact with other businesses.
Amazon does this with its Mastercard-branded credit cards.
Customers earn credit towards their next purchase and receive refunds faster when they use their Amazon-branded cards. Prime members also get the card fee-free, which incentivizes upgrades.
Similarly, embedded lending can encourage larger, more frequent purchases by enabling consumers to spread their cost at preferential rates.
Smart customer credit and buy-now-pay-later, for instance, give customers more flexibility by enabling them to split purchases into several installments. In exchange, merchants earn interest income, boost their conversion rate, and lower cart abandonment. All while increasing stickiness and the number of consumer interactions and touchpoints.
Crypto ownership is growing, and so is interest in paying with it online. In a recent study, 34% of respondents said they'd like to have the option to use it for internet purchases.
From a merchant's perspective, accepting cryptocurrency payments makes it possible to attract privacy-conscious consumers and do business in emerging markets, where international transactions aren't possible without going through intermediaries and paying prohibitive fees.
But the blockchain also has exciting use cases from a logistical perspective.
Smart contracts — "if / when this, then that" programs that live on the blockchain — can automate inventory management, deliveries, and even refunds and returns. And because the blockchain is trustless, immutable, and public you can build trust and increase loyalty by offering customers a high level of traceability and transparency.
By the end of 2022, 20.3% of all retail sales will be made on the internet.
But while the e-commerce industry's future is undoubtedly bright, only merchants who build strong customer relationships will be able to capitalize on the opportunity. And, in order to do this, the payment experience will be fundamental.
In the coming years, the most successful merchants will be those who can offer customers the payment choices, convenience, and security they crave. Dependable fintech partners can help them get this delicate balance right, while lowering costs and creating new revenue streams in the bargain.
Who said fintech and e-commerce aren't a match made in heaven?