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The exponential growth of smartphones and contactless services has led to a sharp rise in mobile payment transactions in recent years. With over 12 million eCommerce companies globally (excluding China), the acceleration of mobile payments has expressly supported the eCommerce industry.
Apart from being faster and easier, mobile payments are also a convenient way of making payments anywhere and anytime. This is one of the key reasons why more users are drawn to this payment method.
Data suggests that in-store mobile payment app use will hit 108.6 million in 2022 among those aged 14 and older. Further, the same study indicates that mobile payment usage will surpass half of all smartphone users by 2025.
This post aims to understand better the mobile payments segment and the various challenges, trends, and opportunities available for the same in 2022.
Mobile payments for eCommerce refer to regulated transactions made through mobile devices through 2 main methods:
Mobile payment technology allows eCommerce customers to digitally make payments for goods and services instead of traditional payment options such as cash, credit cards, or checks.
The size of the global mobile payment market was estimated to be USD 1.54T in 2020. This is expected to grow from USD 1.97T in 2021 to USD 11.83T in 2028 at a CAGR of 29.1% in the 2021-2028 period.
Further, the impact of COVID-19 has been significant on the segment, with mobile payments witnessing a surge in demand across all regions amid the pandemic.
The near-universal presence of mobile devices has led to the rapid adoption of mobile payment solutions worldwide and is driving growth in non-cash transactions. In addition, fast-growing mobile consumers and P2P payments are fueling the global expansion of mobile international payment services.
Mobile payment services have rapidly proliferated in frequently underbanked markets in Asia, Africa, and Latin America. This has fueled the global growth of mobile consumer payments services by enabling millions of people to participate in electronic transactions.
In regions such as India, Southeast Asia, and South America, the younger generation has specifically skipped owning a credit or debit card in favor of using mobile apps. In 2020, the smartphone adoption rate had also reached 68 percent and was expected to rise to 83 percent by 2025 in the APAC region.
Concurrently, the mobile subscriber penetration rate is also expected to reach 62 percent in the same year. However, the adoption of mobile payments as a payment method is weakest in developed nations such as Germany and France because of challenges faced in getting rid of traditional options such as cash and cards.
Here are some key statistics for the mobile payments market to take note of:
Here are some of the top mobile payment apps for eCommerce that customers can use to make payments:
It is a relatively popular app among Samsung mobile owners, especially in South Korea.
Google pay is Android's default mobile payments solution, with an annual run rate of USD 110B in transaction value in 2019 alone.
PayPal is an online payment stalwart with a payments super-app, combining savings, crypto, and deals.
Venmo paved the way with its mobile app when mobile payments were non-existent in the US.
Apple Pay has the most significant transaction volume of any mobile payment service (outside of China)
AliPay is the largest mobile payments platform globally, processing a transaction volume of USD 17T in 2019 alone.
It is a peer-to-peer payment provider that also offers cryptocurrency exchanges.
This money transfer service is popular due to its super-cheap international transfers.
It is India's most popular payments platform, responsible for 75% of mobile transactions in the country.
PhonePe is a Flipkart-backed mobile payments service with over 300 million users in India.
This section will discuss some of the top trends in the mobile payments segment for eCommerce, along with the challenges and opportunities that the sector presents.
One of the top trends seen in the eCommerce industry is digital wallets like Apple Pay and Google Pay becoming a preferred payment method for many shoppers. The key reason behind their popularity is the intuitive form of payment. It saves shoppers a great deal of time and significantly reduces the effort required to purchase.
Besides, this easy and frictionless payment method also benefits eCommerce brands. It helps reduce churn while also offering e-retailers the opportunity to collect insightful data on customer spending.
The pandemic has given contactless and frictionless payment experiences a significant boost in 2020, with about USD 3.9T in frictionless payments being processed in 2020 alone. However, the trend is most likely to stay, and the number is further expected to grow to USD 8T by 2024.
The future is likely to see more platforms introducing direct links from consumers' digital wallets to their bank accounts to streamline peer-to-peer payments and digital purchases.
Cryptocurrencies or digital assets such as Bitcoin and Dogecoin are gaining traction as a form of payment in the eCommerce segment. The blockchain technology that powers these digital assets is also becoming popular and is widely recognized as delivering value at scale.
With a range of benefits, including quick processing, low transaction fees, and ease of making international payments, crypto assets will only see an upward trend in the future.
While many brands, including Xbox, Tesla, and PayPal, have already used cryptocurrency, other companies are set to follow their lead in 2022.
With the growing popularity of eCommerce, there is also a rise in fraudulent activities. Statistics suggest that attempted fraudulent purchases have increased by 69% year-over-year, leading eCommerce brands to look for innovative methods to bolster security and gain consumer trust.
Biometrics is one of the excellent technologies that brands can use to detect and combat eCommerce fraud. Biometrics is a great way to verify consumers ' identities based on advanced authorization systems such as fingerprinting, facial scanning, vein recognition, and other similar biological data.
The other advantage of implementing these methods is that they provide customers with a much smoother shopping experience. It helps enhance conversions and reduces the instances of cart abandonment. Shoppers also have less time to consider their purchases when biometric data offers an interrupted and secure checkout process.
Buy now, pay later is becoming the norm, with an increasing number of shoppers—many millennials—planning to use it during the festive period. As per a recent study, during the 15 months between 2020 and 2021, the user base for BNPL services increased by an exponential 85%. This payment model allows customers to make immediate purchases easily and spread out the cost of their payments interest-free.
With over 75% of BNPL users from the younger generations (Gen Z and millennials), the most significant advantage of BNPL is the increasingly better integration with bank accounts and digital wallets. This makes it a popular way to finance purchases over the short term. This payment method is especially prevalent for eCommerce purchases, notably clothing.
This is the newest trend in mobile payments, where intelligent speakers such as Amazon's Alexa and Google's Nest allow shoppers to shop using words without requiring any clicks.
In recent years, the growth of such voice-enabled P2P payments through digital assistants has been phenomenal. As per data, in 2017, eight percent of the US adult population used voice payments. This figure is projected to increase to 31 percent in 2022 due to the increasing popularity of voice assistants such as Siri, Alexa, and Google Assistant.
This kind of voice shopping offers eCommerce retailers an exciting opportunity to answer customer queries about pricing, highlight product benefits, and create a more personalized and frictionless shopping experience.
Some of the key reasons behind the success of mobile app payment services include the benefit of making the mobile payment system secure and enabling ease of financial transactions. However, there still are challenges in mobile payment integration, such as the risk of fraud and consumer perception.
In this section, we explore some of these opportunities and challenges in the segment.
Let's look at the immense opportunities for mobile payments in eCommerce.
With more than 5 billion people owning mobile devices today and over half of these connections being smartphones, there is a massive opportunity for the growth of mobile payment users. Statistics suggest that the global mobile payment market size will set a record of USD 6.7T by 2023, and the share of Europe alone is estimated at USD 1T.
Another Swedish investment company predicts a significant growth of mobile POS payments from more than USD 48M in 2020 to over USD 111.4M by 2023.
More and more banks are now offering mobile banking services to their customers. They use them to transfer money from one account to the other, check their balance/recent transactions, and more. Such services act as a catalyst to increase the use of cashless mobile payments.
For instance, the increased penetration of smartphones in recent years and access to high-speed internet has led to the massive adoption of QR codes as a payment method in Asian countries.
It is similar to a bar code except that it can store more information per unit area. QR codes as payment options can be seen almost everywhere, from eCommerce sites, movies, etc.
Such is the popularity of this payment method that a recent study predicted that the use of QR codes for electronic payments in the US will increase by a phenomenal 240% from 2020 to 2025.
Research shows that most consumers are unwilling to use a consumer loyalty program if a smartphone app does not accompany it. In addition, 69% of people use their loyalty card continuously if it is available online on their phone.
The secret to mobile payment usage is loyalty, not the payment facility itself. Consumers engage more with brands they are loyal to, allowing companies to gain consumer engagement by offering discounts and rewards within mobile wallets.
Among the critical challenges in the adoption of mobile payments for eCommerce are:
This is one of the key reasons why most customers are reluctant to adapt to mobile payments for eCommerce. Contactless payment presents a massive unknown risk and increases the chances of fraud like hacking, data leaks, undetected malware, e-wallet vulnerabilities, etc.
Data also suggests that global losses from payment fraud have almost tripled from USD 9.84B in 2011 to USD 32.39B in 2020. Payment fraud is further expected to continue and will cost approximately USD 40.62B in 2027, almost 25% higher than in 2020.
To navigate this challenge effectively, the need of the hour is to make the technology secure for all consumers. In addition, it will aid in stopping any potential financial breaches.
All mobile payment services for eCommerce need to abide by the regulatory/legal requirements, entailing financial and consumer-based regulations. This can especially be a problem for new entrants who want to invest in a new market.
For instance, the government has taken a hands-off approach to regulating mobile payment transactions in China. This is because users of third-party mobile payment platforms, including WeChat Pay and Alipay, have been able to make transfers without transaction caps and other restrictions.
Since these transactions are routed and are directly settled through a third-party mobile payment platform provider, banks cannot access the transaction details. This has resulted in mobile payment providers enjoying exclusive access to billions of proprietary data points of consumer behavior.
The lack of such regulations on mobile payment platforms leads to money laundering and other illicit activities occurring over mobile payment networks.
Many consumers still perceive that mobile payments for eCommerce are unsafe or of no use/do not solve anything. A survey conducted for shoppers in the United States in 2018 also reveals that only 37 percent of them found mobile payments more straightforward than other methods, whereas 59 percent of respondents were worried about their personal information when using this payment method.
They are still ill-informed about the benefits of using mobile wallets over traditional alternatives such as cash or credit cards. This is why most of them still use conventional methods for paying or making online payments to buy expensive items.
The mobile payments market for eCommerce is poised for further growth due to the range of benefits to both customers and businesses.
As this trend continues to grow in the coming years, experts predict that more and more people will be making purchases via their smartphones rather than traditional methods like cash or credit cards within the next ten years.
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