The Mobile Commerce Inflection Point

I’m convinced an inflection point of mobile commerce is upon us. Several catalysts are developing and 2016 is shaping up to be the year we may look back and reflect upon as the year our commerce, banking, and financial services went mobile.

One of the benchmark data points I research is share of mobile commerce as a percentage of e-commerce, both globally and in individual markets. Although e-commerce globally is still less than 10% of total retail sales, momentum is picking up and the evidence is mounting that mobile commerce is a key part. This has to do with the high percentage of mobile commerce in rapidly growing e-commerce markets like China where mobile commerce share of total e-commerce is 33%. China has surpassed the US with now just over 11% share of local retail transaction dollars coming from e-commerce. Both China and US are the largest markets in terms of dollars spent via e-commerce. But in the US, mobile share of e-commerce is less than 20%. In terms of dollar amounts, China easily has the largest market coming from m-commerce.

The shift has been slow for consumers to adjust their behavior to shop from their mobile devices vs. their PCs. The PC is still the market share leader when it comes to the device used to make an online transaction, but I am convinced this is all about to change and mobile payments will be the catalyst.

In October of this year, the US market will go through a massive overhaul of its retail payment terminals. Credit card issuers must move to a more secure chip-and-pin solution and retail outlets will comply with this shift due to a fraud liability change in process. What this new solution changes is the credit card companies will no longer be responsible for fraud charges and instead, the retailer or the bank will be responsible for fraud. This liability shift is at the core of massive change coming to US retail. As these terminals get upgraded, the vast majority will support NFC so Apple Pay, Android Pay, and others will be supported in the vast majority of US retail outlets. While mobile contactless card payments are currently less than 1%, I won’t be surprised if, by the end of 2016, they make up 10% of POS transactions in the US.

There is a similar shift happening in China mandated by the Chinese government. By the end of the year, most major Chinese retailers will support a new, more secure credit card solution which will also make many retailers upgrade their point of sale terminals. Here again, NFC will be included in these new terminals making the China retail environment ripe for contactless mobile transactions.

These two events, set to be completed by the end of 2015, will cause the inflection point for the shift from PC-based commerce to mobile-based commerce and may provide a boom for e-commerce at large. Once consumers become comfortable paying for things with their smartphones and realize it is inherently more secure to do so than paying with a credit card (especially in restaurant environments where your card is out of your sight) it will open the floodgates for consumers’ willingness and confidence to rely more on their mobile devices for commerce. I am convinced this will be the catalyst to propel not just mobile commerce but e-commerce in general to new heights.

There may be some interesting new opportunities around mobile commerce to emerge — in particular, I’m watching financial services. Once my smartphone becomes my primary payment mechanism and all my financial information is stored and managed on my device, then I’m not reliant on someone to issue me a plastic credit card to partake in their financial services. This could open up a fascinating new battleground in financial services once the credit card itself is replaced by the smartphone.

An example of this is AliPay in China. While UnionPay is the market share leader for physical card payments in China, AliPay is preferred and used by over 60% of Chinese consumers shopping regularly online. Once they can use their AliPay payment information to make payments at local retail using their smartphones, it gives Alibaba a way to compete in financial services in new ways. This is one reason why I believe Alibaba is looking to get into issuing credit to buyers based on analyzing their online purchases. The global arena for credit has been largely lacking in emerging markets and what I see coming together for mobile transactions both at physical retail and online will likely create new opportunities in this arena.

What I’ve concluded, as I look globally and put some of the puzzle pieces together, is the smartphone will be the catalyst to drive e-commerce to new heights. This shift to more consumer trust of smartphones as payment mechanisms will lead to more opportunity to compete in financial services and new banking paradigms as well. The smartphone has disrupted many industries and will continue to disrupt many more. It will be interesting to see if we add payments and banking to that list.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

19 thoughts on “The Mobile Commerce Inflection Point”

  1. Although I agree that mobile could accelerate e-commerce, I’m still wondering what has held it back so long. E-commerce still being 10% globally is not encouraging, and I think you are implying in this article that in the US, it’s even lower than that.

    Furthermore, on multiple occasions, data has been reported that shows PCs dominating e-commerce, and even within the mobile segment, it is the larger screen iPads that are responsible for a disproportionate amount of transactions.

    This suggests to me that consumers very much value the experience when it comes to committing a transaction, and that experience is usually best at a physical store, so-so with a large screen device, and not very good with a smartphone-size screen. Of course the advancement of mobile payments may improve the mobile purchasing experience to some extent, but it seems to me that other pieces of the puzzle are much more significant. This also aligns with my personal preference, for what it’s worth.

    If my hypothesis is correct, then it logically follows that a dramatic improvement in the digital shopping experience is needed, especially on small screens. Unfortunately in the US and many other developed countries, the Amazon style UI has become the dominant standard and I feel that experimentation in other shopping experiences has suffered. There is very little innovation in web-shop UIs and most investment in the shops seems to be in recommendation engines.

    Here again, we might see innovation come out from east Asia, where we might see better integration of messaging apps with e-commerce and this might improve the shopping user experience. Similarly, social connections like the buy button on Pinterest may also be effective. This would essentially be the integration of social into e-commerce, and would replace recommendation engines as the main discovery mechanism in e-commerce. In any case, I am pessimistic that we will see innovation from Amazon or from other e-commerce incumbents.

    Or, taking a totally different twist, we might see human curation instead of algorithmic recommendation engines, similar to what Apple is doing with Apple Music. Wouldn’t it be nice if we had human connoisseurs recommending fashion or foods instead of dull algorithms? What if somebody found a way to scale this? They would be like the DJs on Apple Music. This may become a mainstream idea if Apple Music takes off.

    My question would be, in addition to the payment improvements that you outlined in the article, what developments do you see that could significantly improve the e-commerce experience?

    1. I know I switch to my PC as much as possible when buying stuff, because it is a multi-tab at affair that generally ends up taking over an hour. For tech stuff for example: look for reviews, look for specs, look for comments, look for sellers. Even for decidedly non-tech shopping, say the monthly groceries, I’ll open a tab to my default list, another one to my last order, Google Keep (were I accumulate wants & needs as they occur), and one tab per store section (frozen, canned, snacks…) to see if anything else strikes my fancy. I’m guessing for one reason or another, most purchases fit this heavy-duty pattern, unless people have taken to flash-ordering bottles of Coke. Doing that on a phone or tablet would be torture.

      1. I would do so too if I were to do monthly groceries online. Instead, I just go drive to the local store.

        The Amazon UI and other store UIs are totally inconsiderate of purchasing workflows. All they have is a wishlist and a list of what products you previously looked at. They don’t appreciate the decades long optimisation that has gone into how brick-and-mortar stores are arranged, so as to provide a good purchasing experience.

        I’ll give an example of how Japanese supermarkets are arranged. Supermarkets usually have a single main entrance where you start off with fruits. Then you follow the aisles by the walls of the store to vegetables, fresh meat, fish, dairy products and then finally bread. Other groceries that you tend to stock up on like sauce, rice, spaghetti and stuff are always in the middle. This format is almost exactly the same for every single supermarket that I visit in Japan. It is designed so that customers can take a linear walk along a predetermined route and know when and where to buy what they need.

        Not so with online supermarkets. They follow the Amazon UI with categories and paginated views. Products are listed in random order so we have eggs, cheese, yogurt and milk dispersed in a single list. Of course they have a drill down search feature, but that’s very different from a physical store where you can simply walk down the aisle and simply browse what’s on the shelves.

        In physical supermarkets, shopping is very much a linear experience. You pick what you see while you just keep on walking forward. In an Amazon style store, the experience is all chopped up and non-linear. You have to constantly think where you want to go next. You have to make sure you don’t forget anything, which is less of an issue with physical stores because you are guaranteed to walk past the shelf anyway.

        Simply, in my experience, the online Amazon-style UI is awful.

        1. Amazon does indeed have a terrible UI… First, it’s more a database than a shop, the shopping experience is plain un pleasant. Worse, the database and its search function are both unoptimized (in the IT section, there aren’t even fields for key characteristics, ie a hard drive’s size) and false (you can search for say, a 6TB hard drive, and get results with smaller capacity).

          Other e-shops have good UIs though, so that’s squarely on Amazon, maybe a consequence of them trying to fit so many different universes (IT, groceries, clothes…) in a single UI. I don’t mind “wishlist” for IT, there are 5 things on it. I *need* shopping list for groceries, there are 40+ things on it. Specialized e-shops tend to have similar UIs when they’re selling the same type of stuff.

          French supermarkets also follow a pattern, though not quite the same: First, there a central very wide aisle from which individual thematic aisles branch off on each side. Second, you start on the right, go through the doodads section (kitchenware, electronics, toys, clothes, DIY) while you still feel like you have money, then the essentials section (food, hygiene), then the heavy stuff section (drinks, cans, cleaning). That’s a stupid arrangement from a logistics point of view (you end up having to fit your water 12-packs in an already full and haphazardly arranged cart), but it maximizes spending: non essentials first, and stuff that makes you feel your cart is full last. There’s one supermarket near my sister’s that doesn’t follow that pattern. First time there I was like Whaaaaaaat ? We’re being experimented on, even though I always shop at counter-current (the logistics thing ^^)

    2. My thesis is the PC took e-commerce as far as it can go. Which is roughly 10% of total retail in the US market and just over 11% in China. As I pointed out in mobile only India, m-commerce is over 40% of e-commerce transactions.

      So use that as a base theory for what happens as the US goes more mobile primary than they are today in general. Let alone as paying at local merchants with smartphones drives a level of comfort and then cross that with what retailers will do to better integrate in store experiences around smartphones. Home Depot’s CMO told me their new app has driven 10% of their total e-commerce sales to happen now on smartphones while a customer is in the store.

      Retailers are going to go full steam on tighter integration with technology and in store experiences and it will drive this even higher. All of this ground work is being laid now and I believe these new experiences around commerce centered around mobile will drive this shift.

      1. Friction – The issue with shopping on the PC is the checkout process. There are a few retailers who have my card details (e.g. Amazon and Waitrose), but for all other internet shopping (including airfares) there is a cumbersome payment process. Verification of the payment takes you to the bank’s website. For some banks it is a matter of entering three characters out of a 10-character passcode. Other banks give you a dedicated chip card reader that takes an 8-digit response code and PIN, and then require you to enter a 6-digit result code (all very safe and complete nuisance at the same time).

        1. I’m not sure that improving the checkout process alone would be enough given that so much e-commerce flows through Amazon anyway. For me at least, there’s a lot more friction in addition to payments.

          Of course, a better checkout process will reduce Amazon’s lock-in, improve the competitive environment and allow websites with better UI and more innovative features to beat Amazon’s archaic storefront. This would be very welcome.

      2. OK. So you think that 10% is the upper limit for e-commerce on PCs and that hopefully m-commerce will significantly improve that. Given that mobile only India is still is only 40% m-commerce though, I’m not convinced that e-commerce will reach even say 20% without breakthroughs in other areas. It all sounds rather disappointing.

        Since pure e-commerce doesn’t look too promising anymore, using mobile tech to improve the in-store experience is the logical next step.

        Regarding payments, often times the bottleneck in terms of user experience is not searching your pockets, but having to wait in long queues and also bringing the goods home. I’m doubt if Apple Pay and similar systems are enough to eliminate these alone, but in combination with m-commerce, it could work quite well. That is, you go to a store, scan the products that you want, pay on the spot, and in the evening the products are delivered to your doorstep.

        Some supermarkets in Japan actually do something similar for the elderly. The customers walk to the store, pick the stuff they want from the shelves, bring them to the cashier and pay. Later in the day, a delivery truck brings the bags to the customer’s doorstep.

        Looking at it this way, the opportunity for m-commerce might be in the unbundling of e-commerce. I believe that choosing what to buy on e-commerce totally sucks. However, I like not having to queue and the effortless delivery. M-commerce offers the expanded possibility of unbundling these and providing the best of both worlds.

  2. I’m a bit confused by the lumping together of mobile commerce and mobile payments. Are the two really merging, or are they quite distinct, as I would expect them to be except in very under-banked countries where Mobile payments are on their way to being what credit cards are in the first world ?

    1. I’m lumping them together because I’m outlying my conviction one feeds of the other. Once mobile payments starts to become more mainstream and consumers become extremely comfortable paying with their mobile devices it will fuel the mobile side of e-commerce.

      As merchants and retailers start integrating better in store payment experiences this will help drive this shift as well. They all seem to realize omni-channel is the way they compete with Amazon so the integration of the two opens up many new opportunities. I was speaking with the CMO of Home Depot and she said since they re-designed their in store app to include chat, support, product finder, and commerce, 10% of their total e-commerce sales happen on a smartphone inside a home depot store.

      These are the kinds of things that will drive a number of new experiences and its all centered around the smartphone.

      1. “Once mobile payments starts to become more mainstream and consumers become extremely comfortable paying with their mobile devices it will
        fuel the mobile side of e-commerce.”

        I don’t see that at all. There are many very good reasons why ecommerce has not grown beyond a small fraction of retail commerce, reasons that I think will forever limit the degree to which it can take business away from real-world commerce.

        Buying online is very goal-oriented — you know what you want, you search for it, you buy it, possibly from the store you’ve used before, or possibly from the store with the best price. It’s a very cerebral process and while it works OK for buying, it’s not at all suited to shopping, browsing, discovery, or to getting things that you don’t know you need until you see them. Plus, shopping in a physical store is great for reminding you of things you didn’t remember to put on your shopping list.

        Real-world buying also provides sensory feedback and sensual pleasures that e-buying absolutely cannot deliver — the ability to directly examine the thing before buying it, to touch it, to see parts of it that aren’t shown in a photo, to experience it as an object, to see it function, try it out, try it on, or taste it.

        Real-world buying also enables instant gratification, the ability to take the thing home with you right now, without having to wait for shipment, worry about being home when it gets delivered or having to arrange to go pick it up.

        In short, real-world shopping is good at everything e-buying is poor at. It’s also a far less cerebral activity, one that you can perform without having to muster all your attention, without having to be fully alert and engaged, without having to think too hard. Which makes it more fun for many people.

        Finally, of course, real-world buying is a social activity, while online buying is a lonely activity. Put it all together and I don’t see e-commerce growing beyond its current limited realm without a lot of changes to the experience, and/or a lot of changes to the culture.

        1. note my point about the Home depot app and in-store transactions via the app.

          My overall point is mobile will do more for electronic commerce in all its forms than the PC did. Both while at home, in store, on the go, etc.

          1. “note my point about the Home depot app and in-store transactions via the app.”

            But that’s not actually e-commerce.Your article talks about mobile commerce as a subset of e-commerce. Using a store’s mobile app to make purchases that you’ve checked out while in the store is something different. The store hasn’t shed any of the costs of brick and mortar (which is sort of the raison d’être for ecommerce in the first place), instead they’ve enhanced the B&M experience with an online extension.

            Mobile will infiltrate itself into nearly every aspect of life, sure. But to talk about its transformation of commerce in terms of increasing the share of e-commerce over non-e commerce, then pointing to an example of its being used as an enhancement to the B&M shopping experience — that seems like moving the goal posts to me.

            My point remains that e-commerce is going to remain a small share of the whole for many very good reasons. The only way online retailers will be able to take a *significantly* bigger slice of the pie is by taking on aspects of the offline shopping experience — like having showrooms, pick-up locations, and the like. Which will eat up a big chunk of the price advantage of online shopping.

          2. I think we have differing definitions of e-commerce. I’d consider, as does Home Depot a person buying an item while in store and picking it up at the desk because they don’t’ want to wait line e-commerce.

            Commerce itself is changing and mobile is playing a role. Whether that’s me in a store, at home, in the car, etc.

          3. I also thought that e-commerce meant Internet storefront + online checkout + delivery like Glaurung-Quena. Maybe we need a new term.

            Similarly, online transactions can now happen at the physical store but not necessarily at the cashier. Our current vocabulary isn’t keeping up… 🙂

  3. You’re so awesome! I don’t believe I have read a single thing like that before. So great to find someone with some original thoughts on this topic. Really..

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