Online Payments in Retail – Thematic Research
The global online retail sales reached $2.4 trillion in 2020. The retail e-commerce market is expected to grow at a CAGR of more than 8% during the forecast period, during 2020-2025.
The shift towards online payment methods away from cash transactions began long before COVID-19, but the pandemic significantly accelerated this trend which is expected to remain even after the crisis resides. E-commerce and m-commerce are projected to keep growing, as a rising number of consumers are using online platforms to shop instead of visiting retail stores. The demand for frictionless, contactless shopping is growing making it essential to understand the online payments market.
Overview of the retail e-commerce market
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What are the market dynamics of online payments in retail industry?
Offering frictionless payment methods means removing any obstacles or stress for the consumer during the transaction process. The benefits of reducing friction include increasing the convenience and speed of completion for shoppers. For retailers, it reduces the possibility of a purchase being abandoned as there is less time between selection and payment for shoppers to reconsider the purchase or talk themselves out of an impulse purchase. New smart technologies continue to disrupt payments, allowing consumers to purchase items with little or no effort. Retailers are offering various frictionless payment methods including cashier-less store formats and allowing payments through facial recognition, among others.
Card payments, which have been the dominant method for online payments, are having their position challenged with the introduction and adoption of alternative payment methods, which is taking away market share from card payments. Consumers in developing countries gravitated towards alternative methods of payment, such as e-wallets, as populations with limited access to card facilities and complicated financial services could quickly adapt readily accessible digital means to make online payments. Digital payments also worked as a contactless solution for in-store purchases as customers became wary about using cash during COVID-19. Thus, online and contactless payments became a necessity in 2020 and will continue to grow as transactions migrate from physical POS to online platforms. Retailers have taken steps to improve the array of payments they accept, both online and offline to meet the increasing requirements for alternative payments.
What are the key trends that will shape the online payments market in the retail industry?
The key trends driving the online payments market in the retail industry are technology trends, industry trends, and macroeconomic trends.
Technology trends
The main technology trends that will impact online payments in the retail theme are biometrics, Buy Now Pay Later (BNPL), CDBCs, cryptocurrencies, and non-fungible tokens.
Industry trends
The key industry trends that will impact online payments in the retail theme are cashier-less stores, contactless payments, customer loyalty, secure payments, and social commerce.
Macroeconomic trends
The main macroeconomic trends that will impact the online payments in the retail theme are COVID-19, cross-border payments, electronics payments push, geopolitics & China, regulations: blockchain, and regulations: BNPL
What are the different value chains of online payments?
The online payments value chain can be further segmented into consumer and payments processing. The value chain for online payments highlights all the parties that are required to enable an online transaction between a payee and a recipient. Depending on the payment method chosen, a different set of intermediaries are involved. The number of intermediaries has a direct impact on the cost of transactions for merchants and how fast the funds are made available to them. The greater the number of intermediaries a consumer must interact with, the longer and more tedious the process becomes. On the other hand, offering a larger number of payments options in-store and on websites and apps will boost customer satisfaction and loyalty.
Which are the leading online payment companies in the retail industry?
The leading online payment companies in the retail industry are ACI Worldwide, Adyen, Affirm, Afterpay, Alipay, Amazon, American Express, Apple, Danske, Google Pay, Klarna, Kroger Pay, Mercado Pago, Paytm, Revolut, Samsung, Square, Tenpay, Visa, and Walmart Pay.
ACI Worldwide
ACI Worldwide is a US-based payment system company that develops a broad range of software focused on real-time payments. The company provides online payment solutions such as payment processing, switch interchanges, ATMs, POS equipment, and bill payments. Its clients include banks, third-party fintech, corporations, and eCommerce sites. Like other established payment providers, the company is looking into being a digital transaction-focused player. In August 2021, it teamed up with PayPal to enable utility bill payments through digital wallets.
Adyen
Formed in 2006, Adyen is a major player in European payment processing, mostly operating in the eCommerce sector. The company processes transactions in the cloud; all payments accepted by merchants are completed digitally. Adyen currently processes payments for eBay. It also has a contract to process all Alipay transactions outside of China, putting it in a strong position to benefit from China’s growth and maturation in online payments.
Affirm
Founded in 2012, Affirm is a fintech that operates in the consumer-oriented financial lending space, including BNPL. Consumers can choose to repay loans in either three, six- or twelve-month installments. It charges no interest for three-month plans and charges between 10% to 30% for six- and twelve-month options. Strategic partnerships with companies such as Shopify, Walmart, and Amazon are expected to help grow its presence in the US and make it an important player in the BNPL sector.
Afterpay
Afterpay is a BNPL company based in Australia with services also spanning the UK and North America. Originally online-only, since 2017, the company also now offers its services at in-store retail locations. It charges no interest to customers for using the service, although failure to make payments on time results in a late fee, and it charges merchants 4% to 6% fees for transactions made using its service. In August 2021, digital fintech company Square acquired the company for $29 million, which will help Afterpay expand its presence among merchants who use Square’s software.
Online payments market in retail industry, by leading companies
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Market report scope
| Market size (2020) | $2.4 trillion |
| CAGR | >8% |
| Forecast period | 2020-2025 |
| Key trends | Technology Trends, Industry Trends, And Macroeconomic Trends |
| Value chain | Consumer and Payments Processing |
| Leading companies | ACI Worldwide, Adyen, Affirm, Afterpay, Alipay, Amazon, American Express, Apple, Danske, Google Pay, Klarna, Kroger Pay, Mercado Pago, Paytm, Revolut, Samsung, Square, Tenpay, Visa, and Walmart Pay. |
Scope
The COVID-19 pandemic has boosted the use of online payment systems, a trend that is here to stay. M-commerce is likely to become the biggest contributor reaching 50% of all e-commerce. Retailers are aiming to make online payments frictionless which will reduce the possibility of purchases being abandoned. The online payments industry is highly fragmented which is why retailers are looking to merge efforts to increase their market shares.
Reasons to Buy
- To gain a comprehensive understanding of the role played by online payment systems in the retail industry.
Key Players
Table of Contents
Frequently Asked Questions
The global online retail sales was $2.4 trillion in 2020.
The retail e-commerce market is expected to grow at a CAGR of more than 8% during the forecast period.
The key trends driving the online payments market in the retail industry are technology trends, industry trends, and macroeconomic trends.
The leading online payment companies in the retail industry are ACI Worldwide, Adyen, Affirm, Afterpay, Alipay, Amazon, American Express, Apple, Danske, Google Pay, Klarna, Kroger Pay, Mercado Pago, Paytm, Revolut, Samsung, Square, Tenpay, Visa, and Walmart Pay.
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