GlobalData Plc

Analyst Interview: Online Payments in the UK

Senior Consumer Payments Analyst Samuel Murrant has been working on our “Online Payments in the UK” report. Here we ask him about what he discovered in his research.

What was the most interesting thing you found out when researching this report and why?

The online returns market in the UK was worth £3.5bn ($5.3bn) in 2015, 8% of the overall online consumer spend on retail goods in 2015. This market is surprisingly large and represents a significant challenge in terms of reliability of revenue, as well as logistics, for retailers selling goods online. Clothing & footwear accounts for the majority of online returns with a 61% share of the total market by value, due to the increasingly common practice of ordering clothing online speculatively, and returning items which don’t fit or don’t look as imagined. This market is expected to grow by 50% in the five years up to 2020 – meaning that retailers will need to become more efficient at processing returns in order to ensure they can re-sell returned items quickly enough not to fall behind, particularly during the busy winter months.

What are the main challenges for this market in the coming five years?

Aside from the challenges raised by the expected growth of the retail returns market, the single greatest challenge to the UK online market is the expected growth of mobile commerce. Consumers have also come to expect – and will increasingly demand – to be able to shop online on any device, at any time. Most large merchants already have mobile-optimized online storefronts, but payments must also be optimized for the small screen. Mobile devices are poorly equipped for the entry of large amounts of data such as card details and delivery addresses, making long checkout forms a recipe for cart abandonment going forward. Payment providers will need to be able to provide secure payments for consumers without requiring much in the way of data entry.

What are the major opportunities in the market?

The online payments market in the UK is highly mature – almost all consumers in the country have shopped online and most merchants have online storefronts and relationships with payment service providers (PSPs) to accept online payments. As a result, there are few opportunities to be exploited regarding new consumers. The major opportunities are aligned to the main challenges – online returns and mobile commerce. As both of these markets grow, so too will consumer expectations.

In respect of online returns, consumers expect to be able to send goods back to merchants, ideally free of charge, and receive prompt refunds. Merchants that can keep pace with the logistical requirements of quickly processing returns will be able to satisfy their customers better (as well as run their businesses more efficiently), and PSPs that make it easy and cheap for merchants to process refunds will be more attractive to merchant clients.

In order to deliver on consumer expectations of convenient mobile commerce experiences, services such as PayPal (and digital wallets in general) which can store card information for quick access on mobile devices should be partnered with in order to give consumers as frictionless an online checkout experience as possible.

By Sam Murrant, Senior Consumer Payments Analyst

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