The deep dive: Evolution of e-commerce payment

By Puja Sharma

In the aftermath of COVID-19, online shopping volumes have reached new highs around the world, highlighting consumers’ shift to digital channels. According to Google, Temasek, and Bain & Company’s e-Conomy SEA report, e-commerce has emerged as Southeast Asia’s growth engine, increasing 63% to reach $62b in 2020.

To keep up with changing customer behaviors and expectations, financial services companies must keep up with this rapidly changing payment landscape.

How does it work?

E-commerce sites use electronic payment, where electronic payment refers to paperless monetary transactions. Electronic payment has revolutionized business processing by reducing paperwork, transaction costs, and labour cost. Being user-friendly and less time-consuming than manual processing, it helps business organisations to expand their market reach/expansion. Listed below are some of the modes of electronic payments:

• Credit Card
• E-Money
• E-wallets
• Cash
• Mobile payments

Credit Card

Payment using a credit card is one of the most common modes of electronic payment. A credit card is a small plastic card with a unique number attached to an account. It has also a magnetic strip embedded in it which is used to read credit cards via card readers. When a customer purchases a product via credit card, the credit card issuer bank pays on behalf of the customer and the customer has a certain period after which he/she can pay the credit card bill. It is usually a credit card monthly payment cycle. Following are the actors in the credit card system.

E-Money

E-Money transactions refer to a situation where payment is done over the network and the amount gets transferred from one financial body to another financial body without any involvement of a middleman. E-money transactions are faster, convenient, and save a lot of time.

Online payments done via credit cards, debit cards, or smart cards are examples of money transactions. Another popular example is e-cash. In the case of e-cash, both customer and merchant have to sign up with the bank or company issuing e-cash.

E-Wallets

E-wallet is one of the upcoming trends which gives a new shopping experience altogether. The use of e-wallets is becoming popular at an alarming rate.

E-Wallets require a sign-up from merchants as well as customers. After creating an e-wallet account and linking it to the bank account they can withdraw or deposit funds. The whole procedure with an e-wallet is easy and fast. Considered an advanced and instant digital payment method, e-wallets can be integrated with mobile wallets using advanced functionalities like NFC.

Prepaid e-wallet accounts store customer information and multiple credit/ debit cards and bank accounts. It needs one-time registration and eliminates the need for re-entering information every time while making payments.

Cash

Cash is often used for physical goods and cash-on-delivery transactions. It does come with several risks, such as no guarantee of an actual sale during delivery, and theft. Though nowadays, cash on delivery does not necessarily mean customers pay with cash (they can use cards, mobile payments as payment terminals are often available with delivery agents), missing out on this is a strict NO.

Mobile payments

Payment acceptance was no exception for mobile penetration. This digital payment solution offers a quick solution for customers. To set up a mobile payment method, the customer just has to download software and link it to the credit card. As eCommerce is becoming mobile mainstreamed, customers are finding it more convenient to use mobile payment options.

Who is under the radar?

E-commerce payment continues to shift towards digital wallets and Buy Now, Pay Later from credit cards and cash. The rise of alternative payment methods and the growing popularity of wallets and BNPL and leading to the decline in the use of credit cards.

Greater customer convenience, superior check-out solutions, and flexibility in underlying payment methods will drive the growth of digital wallets.

Here’s the top payment method for global e-commerce (2021-2025) via IBS intelligence.

Why does it matter now?

India and the other APAC nations are lucrative markets for international e-commerce players. As a result of citizens seeking out high-quality foreign electronics and lifestyle products, cross-border e-commerce contributes to the majority of e-commerce sales in India – 74% of the total. At present, India’s top three countries to buy from abroad are the United States, the United Arab Emirates, and Hong Kong, as per the report by J.P Morgan.

The enactment of new e-commerce regulations in 2019 may also further encourage international businesses to engage in India’s e-commerce market.

Increasing adoption of digital payments has accompanied this move toward online commerce. In 2023, Accurate estimates nearly 420 billion transactions worth $7t will be shifted from cash to cards and digital payments – and that number will increase to $48t by 2030. To keep up with changing customer behaviours and expectations, financial services companies must keep up with this rapidly changing landscape.