Digital payments is a rich breeding ground of innovation: consumer investment specialist True’s co-founder Matt Truman explains why now is the time to prioritise and progress payment strategies.

Following a year of rapid acceleration in digital adoption — to coin a Bezos’ phrase — many brands and retailers are looking at how through new technologies they could turn cost centres into profit centres.

As consumers show increasing willingness to try new and varied technologies, one that has experienced notable innovation is in the until recently largely ignored area of digital payments.

These technologies are turning good payment experiences into a competitive advantage like never before. 

Ecommerce merchants are planning to expand their offerings to meet the rising demand for options such as buy now pay later, biometric payments, open banking and cryptocurrencies. 

They view this as a key tool for broadening the customer demographics for brands while also further personalising the experience, a service now expected and demanded by consumers. 

In demonstration of this, across Europe:

  • During 2020, 50% of consumers used a digital wallet
  • 11% of consumers used biometrics at least once and surprisingly quickly
  • 5% used a form of cryptocurrency to pay for retail products

Interestingly, at present 25% of retailers and brands offer crypto payment options but this is expected to increase to 49% in the next 18 months, highlighting the significant structural change driven by consumer behaviour. 

Two sides of the crypto-coin

For many executives, crypto as currency is seen as an important marketing tool, a smart way to increase speed and security of payments and a long-term path to the democratisation of finance. Others see it as a systemic risk to finance that needs regulating. 

The benefit for both sides of these technologies is clear — for example, the rise of buy now pay later. Capital Economics recently calculated that the consumers saved £76m in interest and fees by using such schemes. 

From a retailer perspective, Klarna recently reported a 30% increase in checkout conversion rates and a 58% higher basket size for its merchants, which is a monumental step change economically for online businesses given the marketing cost is already sunk. Furthermore, competitor Afterpay has reported an 8% to 18% decline in returns and refunds, which would compound the economic benefit.  

There are of course certain moral questions about whether this is just another predatory financing package that plays on the more vulnerable in society. That is an argument not without merit, and it is safe to expect some form of increased regulation before long. 

“More than two-thirds of consumers use their smartphones to make payments, citing ease, convenience and speed”

Looking forward, the number of digital wallet users is expected to increase from 2.3 billion in 2019 to 4 billion in 2024 — half the world’s population. More than two-thirds (70%) of consumers use their smartphones to make payments, either through digital wallets or app/mobile browser payments, citing ease, convenience and speed — core elements of the value proposition. 

In terms of plotting direction, the East has largely outdone the West. Driven by Alipay and WeChat, 85% of consumers in China used QR codes to pay in 2020, up six percentage points in a year. 

In 2019, around 1,000 convenience stores installed a facial recognition payment system and more than 100 million Chinese consumers registered to use the technology. 

Finally, social frictionless commerce through livestreaming is becoming a core marketing channel where conversion rates and basket sizes are higher, with payment completely seamless. 

True’s investment into Buywith, an Israeli livestreaming social commerce platform is an early example of this new marketing and payment channel. 

“As consumers demand ever more seamless experiences, both on and offline, this presents an opportunity for retailers to fundamentally rethink their payments strategies”

Overall, as the chart below demonstrates, the whole area of payments is attracting significant early-stage investment into new technology that is driving extensive innovation. 

Innovation business landscape

business landscape

This is a trend that will only continue as consumers demand ever more seamless experiences, both on and offline, and presents an opportunity for retailers to fundamentally rethink their payments strategies. 

The winners will be those that shift from payments being a necessary afterthought towards integrating them as a critical component of the end-to-end experience offered to their shoppers.  

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