My firm did several research studies early on in the mobile payments era. Interestingly, the concept of digital/mobile payments is a much more widespread phenomenon when you look at it globally. M-Pesa in many countries in Africa is becoming the default way to send payments since carrying cash in many regions there is dangerous. In India, Paytm has grown incredibly as an alternate form of payments, and certainly in China cash is almost entirely gone thanks to digital wallets and payments mechanisms like AliPay and WeChat pay.
What all those systems have in common is they are not credit cards or debt machines. They are more like PayPal in the US or Venmo which you load with cash to fill your wallet and then pay from your account base. They are often linked with banks or credit cards but are more a form of digital cash. The distinction is important as we think about the future of Fintech as well as digital payments going forward.
In all the countries I mentioned, an accelerated move a digital currency, or digital cash, fueled the growth of e-commerce in ways very few saw coming, particularly in China. China has the highest rate of e-commerce as a percent of total consumer sales, just over 50% and no other country is relatively close. India has moved up the ranks and digital currencies, among other reasons, are key factors.
I feel this is important to observe because it would suggest that as major markets like Europe, and the US, increase in penetration of digital cash or digital wallet based solutions that it will contribute to the rapid rise in e-commerce we are all waiting for. The US is still hovering around the 10% mark for e-commerce as a part of retail transactions, and the UK is now closer to 20%. Both these markets have the potential to change the fortunes of certain companies, as well as empower an entirely new growth stage around Fintech solutions, once e-commerce starts to snowball. How much longer we have to wait is the key question.
It was fascinating when we studied both the US and UK adoption of mobile payment solutions, including Apple Pay, how the big psychological barrier was to add your credit card to your smartphone. Even for a mass of respondents who indicated they trusted Apple, they were still uncomfortable adding their credit card to their smartphone. This has likely eased, to a degree, in today’s market, but it still feels like a big leap for the mass market and still a barrier to the ultimate uptick of mobile payments.
I have no doubt that as adoption of mobile payments/digital wallet solutions become widely adopted in US/UK that it will continue to spur new forms of commerce and enable new opportunities.
As interesting as the offering of a new credit card from Goldman Sachs and Apple is, I’m not sure what consumers want is another credit card. I think what consumers want is their current banks/credit cards to support and embrace digital solutions more robustly. And, consumers want to know that mobile payments like Apple Pay are supported everywhere. In the US this has always been a chicken and egg solution where broad support is needed, and it has moved much slower than many anticipated. We are getting close, as most major retailers support mobile payments but, in the US, the percentage of consumers still using them regularly is low ~15-20%. Again, as this grows the opportunity for e-commerce gets extremely interesting in the US.
Blending of Advertising and E-Commerce
One of the more interesting themes I read about in future of advertising reports is the blending of advertising and e-commerce. Amazon may be a good case study in this as their advertising, or sponsored products, efforts seem to be exactly what this blend is suggesting. Other examples are things like buying products through Facebook or Instagram as friction disappears and consumers can easily purchase products directly through social media.
A key point about the potential to blend advertising and e-commerce is how targeted and relevant the ads will need to become. Today it feels quasi-targeted around interests, which is still why purchasing products discovered on social media is still low. Even in the case of Amazon, the sponsored product posts are often only generally related to the product search but not highly targeted to the specific features a consumer may be looking for. This is where the opportunity upside comes into play, and machine learning and AI are fundamental for companies to successfully execute in blending advertising and e-commerce.
But even with these efforts in motion, I still come back to something I wrote a few weeks ago which questions the nature of trust in this new world. Consumers will get wise to sponsored reviews, or sponsored posts/products, and begin to question whether they can trust the things they used to use to aid in their product decision making. Knowing that a trusted friend, or family member, is by far the biggest influencer in aiding in purchase decisions for new products you have to wonder how that can translate to the digital realm. That used to be reviews, but if reviews come under scrutiny it just complicated matters.
This is a tricky balance. There is a lot of upside but also a lot of challenges associated. If you want to see some broader context here that could inform the future of advertising, we published our full report on advertising and brand/product discovery on the Creative Strategies website here.
