by Tim Attinger
eCOM 302: Emerging eCom Competition
Lesson 1 Discussion Board: How well are today’s eCommerce checkout solutions positioned to drive transaction growth across multiple merchants? Click here to respond.
As the name of the game in eCom payments moves from securing and executing the transaction to actually generating the sale and closing the purchase cycle loop with the consumer, companies that can build communities of users and anticipate their desires through tight profiling —such as online advertisers, closed loop technology players, and social media operators— compete at a significant advantage in payments. In this course we will further examine the evolution of online payments with an eye toward understanding the evolution of competition in the segment, the changes in the landscape as checkout functions move to serve multiple merchants, and the potential for growth and revenue as checkout managers evolve their business models from basic transaction facilitation to commerce creation.
Account Management to Transaction Facilitation: Innovation in the eCommerce payments space has focused largely on managing retail purchases as the largest segment in payment and transaction revenues. Management of retail purchases initially began with the creation of streamlined checkout processes designed to ease consumer conversion from browsing to buying. In the early days, merchants and processors learned consumers would abandon shopping carts as they were faced with multiple pages of forms to fill out on the way to completing the transaction. In particular, consumers would often cite the process of entering payment account details and address data for verification as inconvenient and, sometimes, insecure. Checkout solutions in the sector have all evolved, in one way or another, from eCommerce players seeking to respond to that basic consumer need. Most significantly, because these solutions encourage consumers to register a payment account in the initial set-up that is then accessed through a simplified checkout downstream, they have begun to behave like separate payments products themselves.
In the process, checkout innovation has evolved from general card acceptance and consumer registration to increasingly tailored offerings that fit tightly within merchant checkout processes. And from that tight integration, and because an online interface provides the opportunity to present the consumer with preferred payment choices or discounts at the point of transaction, increasingly these checkout systems promote alternative network routing. This routing can often take the form of consumer registration of direct-debit account data followed by processing through a bulk check settlement system managed by the Federal Reserve called the Automated Clearing House.
The value proposition to merchants includes both increased convenience and speed of checkout with the potential for lower-cost transaction processing through driving transactions to merchant-preferred networks. Consumer benefits are tied to the convenience of speedier checkout, through tight linkage with the merchant checkout process, and increased confidence and the appearance of added security, which comes from managing the consumer account information in the background with it tied to an alias (user name and password), eliminating the need for the consumer to enter account information for every purchase. As they have evolved, checkout solutions have grown from basic facilitators of consumer payment to generators of consumer demand and site traffic, browse-to-buy conversion, and payment choice direction.
Competitor Basics: In the drive to simplify the consumer shopping experience through alias engines and checkout services, a handful of online payment solution providers have attracted rather significant populations of consumers. As those user populations have grown into the tens of millions for the market-leading checkout services, those solutions have gone looking for other places to apply their processing capabilities and to which they can bring their large base of transacting customers. In that effort, a few of the leading checkout solutions have moved from the merchant environments for which they were originally designed and into broader checkout solutions for multiple merchants. In this evolution, these checkout solutions have migrated from a way for a discrete merchant, or group of merchants, to convert sales and into a more full-service online merchant acquirer model.
When checkout solutions sell into new merchant environments, the merchants often cite favorable transaction economics as the major selling point. The assumption being that some portion of the settlement mechanism in the checkout back-office will be attached to low-cost (and often low-function) forms of settlement such as a merchant private label credit card or, more often, direct settlement with the consumer’s deposit account through the ACH. Many merchants adopt nominally “lower cost” alternative checkout solutions to build price leverage against their existing accepted forms of payment, often threatening to push the consumer toward alternate forms as a way to win transaction pricing concessions from more established payments brands.
However, a much stronger and more subtle value proposition from established checkout solutions to new merchants is the ability to drive closed-loop marketing campaigns and merchant promotions to the established base of consumers. By combining the application of core shopping capabilities to multi-merchant environments and marketplaces, checkout solutions have created the opportunity to shift their value proposition from commerce facilitation – that is, the simple execution of payment— to commerce generation –creating consumer demand for merchants, driving site traffic, and proving incremental sales.
In our next class, we will cover the marketplace positions and value propositions of the key emerging eCommerce payments competitors. We will conclude with some conjecture of where the industry may be headed. For now, let’s get the discussion started on where they stand today.
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Driving Payments Innovation through Education- PYMNTS University
Durbin Debit 101 (required): Retail Deposits Have Changed Radically Overnight
Debit 201 (Required. Debit 101 prerequisite): Is Prepaid “Debit-Lite?”
Point of Transaction 201 (required): Competition for Consumer Choice
Mobile 205 (required): GPC Payments Value Proposition
Mobile 206 (elective. Mobile 205 prerequisite): Emerging Payments Value Proposition.
Cloud Payments 210 (required): Building Value in the Network
eCom 301 (elective): Evolution of Online Commerce
eCom 302 (elective): Emerging Competition
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