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Before the pandemic, e-commerce was growing at a steady pace of 4.5% a year around the world. Yet, the pandemic and the movement restriction measures that aimed to protect public health and growing consumer preference to avoid physical stores have led to a massive shift of consumers to digital channels for shopping. And, this significant shift towards online shopping has been accompanied by the increasing adoption of digital payments.
Services such as digital payments, credit, and insurance are all increasingly being offered at the point of sale by digital providers or non-financial companies, a trend known as embedded finance (more on this one later).
In other words, the pandemic acted as rocket fuel for digital transformation, providing an opportunity for the payments industry to innovate and adapt to modern retail needs.
So, after a year of such rapid transformation, what can we expect to see in 2021 when it comes to the payments industry? Keep reading below to find out how the pandemic has altered consumer behaviors in terms of online payment preferences and the trends we're expecting to see more of this year.
With online shopping on the rise since the beginning of the pandemic, we can absolutely say that non-traditional payment methods such as bank transfers, e-wallets, cash-based digital payments, and local credit cards have experienced huge growth. In fact, they are now the prevalent payment methods around the world, being used in over 70% of all online transactions.
During the pandemic, data shows that consumers were also more inclined than ever to use different payment methods in the search for the best convenience and security during national lockdowns. More precisely, data shows that 56% of global consumers reported that they had used a new local payment method in the first month of the pandemic.
One payment method that thrived particularly during the pandemic was the interest-free "buy now pay later." Data shows that 44% of US consumers believe that the availability of "buy now, pay later" matters a lot for how much they spend with retailers.
One of the reasons why the "buy now, pay later" payments method has seen so much popularity lately is because the pandemic has brought job losses and unprecedented financial strain to consumers. Therefore, consumers prefer the flexible nature and lack of financial penalties of "buy now, pay later" payment tools.
McKinsey described the massive boom of global e-commerce as the "quickening effect," representing a 10-year shift in e-commerce that happened in just 90 days. Data shows that during June last year when the entire world experienced the strictest lockdowns, e-commerce sales saw a 34% increase year-over-year. This is the highest growth rate reported since March 2008.
But here's the deal: many consumers didn't turn to their trusted business during this critical period caused by lockdowns. Instead, they turned to new retailers. This created major disruptions in brand loyalty, creating a wealth of opportunities for small and big businesses, encouraging them to take their operations online and across borders. Even Facebook understood that and launched its own shopping feature to support small businesses to sell to customers.
Now, it's evident that this digital surge in online shopping will continue to grow, even after lockdown restrictions will be lifted by authorities. Yet, in 2021, merchants who want to stay competitive and stand out from the crowd in e-commerce's new standard must support more than only card transactions.
Don't believe us? New research suggests that 42% of US consumers will abandon their shopping carts if their preferred payment method isn't available at the checkout step. So, retailers need to expand their current payment offerings more to satisfying changing needs and preferences of consumers.
Are there any payment trends we're expecting to see more of this year? Yes, quite a lot of them!
1. Improved payment-processing partnerships
One of the trends we're expecting to see more of these days is that merchants will start to reconsider the effectiveness of their payment-processing partnerships. Now, more than ever, they need to make sure that they have a high-performing payment infrastructure to accommodate the shifts in payment volume.
Online retailers will likely look for superior payment processing platforms for their websites and mobile apps, such as Payment for Stripe mobile point of sale app, to collaborate with to accommodate the needs of their customers.
2. Fraud prevention strategies and CX will team up
What's more important: to provide a great customer experience to your audience or keep their data safe? If you didn't answer "both," you need to think twice. Data suggests that 57% of online retailers agree that their efforts for fraud prevention make it difficult to provide an excellent customer experience.
Yet, in 2021, we expect security experts that collaborate with retailers to find better fraud-prevention strategies that also allow a smooth CX.
3. Embedded finance will grow further
As we've promised above, we'll discuss a bit about embedded finance. Embedded finance refers to software and applications peddled by non-bank providers such as ridesharing companies, consumer-focused fintechs, telcos, or large consumer tech companies. These providers offer different financial services such as integrated payment processing, debit cards, instant payouts, digital wallets, or installment loans.
We expect the embedded finance opportunities to only grow this year.
4. QR codes are making a comeback
QR codes had their best days back in the 2010s but have since fallen out of fashion for open-loop payments. Yet, in 2021, as part of retailers' no-contact checkout strategies, we're expecting QR codes to make a comeback.
After a year of steady e-commerce growth and a significant shift towards online shopping, consumers are increasing their adoption of digital payments. We should expect to see more innovation in online payments.
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