Payments have been a critical part of the daily lives of individuals, businesses and governments for over two millennia – from the first coin minted around 600 BC, which steadily replaced barter and exchange, to the rise of the cryptocurrencies that capture headlines today. The history of payments is characterized by constant technological and societal change, as well as by increasing indispensability to economic activity.
Modern technological developments have altered the way consumers interact with financial institutions, disrupting the payments system. The rise of the internet, digitization, shifting consumer preferences and, in some but not all cases, regulatory reform, has accelerated the uptake
and use of electronic payments (e-payments).
Payments are fundamentally about trust. And as we all conduct more of our shopping online, there’s a fine line between convenience and safety. The more seamless online payments become, the more easily the wheels of commerce turn. But get online shopping security wrong and the whole system might seize up as fearful buyers withdraw from purchases.
The acceleration of e-payments has supported e-commerce and brought significant benefits.
E-payments help overcome the complicated and extremely costly process of physically collecting cash payments for a product purchased or sold online. Simply put, e-payments make e-commerce possible and practical.
For example, high use of cash-on-delivery in some countries can lead to more failed deliveries due to the absence of the consumer to pay for the goods, which can add to the labor costs of making repeated last-mile deliveries.8 By contrast, cash-on-delivery is used as payment in less than 1% of overall orders on the Indian e-commerce platform Paytm Mall, with many users already connected to the company’s associated e-wallet. Reported wastage on failed deliveries from the platform is negligible.
The internet combined with e-payments has also driven the sale and purchase of new digitized products and services. Nevertheless, problems associated with cross-border payments remain a major barrier. According to one survey, e-services exporters reported issues with international
e-payments as the largest bottleneck in the process chain, compared with other elements such as establishing an online business.9
E-commerce opportunities can also be boosted by particular innovations in e-payments that have eased or revolutionized access to financial services for the billions of adults who lack them.10 According to the World Bank, formal banking reaches about 40% of the population in emerging markets, compared with a 90% penetration rate for mobile phones. Providing payment options via mobiles (m-payments) allows easier market access for consumers, and possibly merchants,
who would not qualify for bank accounts and would have previously been unable to engage in e-commerce. The rapid spread of m-payments solutions is highlighted in Box 1.
M-payments are relatively popular in the Asia-Pacific region, with 53% of connected consumers using mobiles to pay for goods or services at point of sale via apps in 2016. This compares with 33% in North America and 35% in Europe.11 While not all m-payment or mobile wallet options may be tailored for online shopping, and even fewer if any for global e-commerce, these are worth noting as part of broader efforts towards financial inclusion.12
The opportunities outlined notwithstanding, e-payments often arise as a challenge facing businesses trying to expand global e-commerce, particularly small businesses.16 For example, a recent survey of merchants in 15 emerging economies in Latin America, Asia and Africa identified
e-payments as a moderate obstacle to e-commerce, and more problematic for small firms.17 Regardless of whether e-payments are the most cumbersome barriers to global e-commerce, there is a general sense among some stakeholders that more could be done to support an enabling environment.18 Further, while e-payments are
increasingly embedded into consumers’ digitally connected lifestyles, suppliers of payment services face a rising range of regulatory and trade barriers.
Many e-payment impediments that appear to arise on either the demand- or the supply-side are traceable to outdated or poorly structured regulatory frameworks – such as ill-adapted or poorly written consumer protection regulations; restrictions on the establishment and operation of non-bank
payment providers; disproportional KYC regulation; stringent reserve and currency requirements; or skewed playing fields for participants in the payments system. Institutional weaknesses such as poor contract enforcement may also create impediments to the development of a robust payment system.
Offering secure payment and update is crucial to win customer trust in e-commerce.
Not being sure about where their money is going can be a big reason why customers are put off from splurging online, so to build trust, small businesses must demonstrate the same characteristics of their larger, more reliable counterparts.
“Use trusted providers such as PayPal, Apple Pay or Google Wallet, because they’re recognizable and already have inbuilt security,” says Ms Haunit.
Once a customer has put in an order, it’s key to provide them with an immediate acknowledgment email, explains Alex Grace, managing director of online clothing company, Banana Moon Clothing. “It’s always a worry when you click that ‘pay’ button and don’t receive a confirmation email,” he says. “They’re easy to automate and vital for building trust.”
Compelling product descriptions, high-quality images, reviews, and testimonials are great at getting people to like and trust you. However, getting them to actually trust you with their credit card information is another thing altogether.
19 percent of online shoppers ditch their carts because they don’t trust a site with their payment information. So display your trust badges, payment provider logos, and SSL certificates. These are powerful indicators that your customers’ payment information will be encrypted and processed safely.