by Tim Attinger
eCom 301 (elective): Evolution of Online Commerce
Lesson 2 Discussion Board: What might have been the unique “network effect” characteristics of the environment in which PayPal ignited, and how might that translate (or not) into other solutions? Click here to respond.
In our last class, we began with an overview of the basics of eCommerce, the fundamentals of how infrastructure adapted to the unique environment presented by the segment, and of the basic dynamics at work in the processing of eCommerce merchant transactions that have underpinned the evolution of the marketplace. As the marketplace has evolved, consumer familiarity and comfort with the process of buying online has increased, while merchant and processor investment in making that experience more convenient, seamless, and integrated into the continuum of “see-want-get” has fueled and responded to that increasing consumer comfort.
In today’s class, we will review how the forces at work in the traditional payments space, magnified and streamlined by the dynamics of the eCommerce marketplace, bring all of the power and conflict of the payments business to bear on the place where consumers click the “buy” button. We will also look at how some of the best and brightest in the industry are working to drive the “buy” button they have developed into a host of other online marketplaces.
Check Me Out, Here: Everyone who has ever bought a gift for a loved one online at the last minute, doing holiday shopping from a hotel room, office, or their living room, is familiar with the basics of eCommerce: log on to a website, fill a basket, enter account details, click “purchase,” and wait for Grandma to get that basket from Harry & David. Yet underneath the surface of the basic marketplace, a fundamental shift has been taking place to make this process more convenient, more immediate, and more rewarding.
Merchants and payments processors have been working to tie their capabilities together more seamlessly behind the scenes. Emerging payments companies have been building new business models on the back of current infrastructure. The initial merchant processes of rudimentary multi-page form-fill have been replaced with streamlined shopping cart applications, checkout management processes, and one-click purchase execution. Over time, these simplified checkout processes at single merchants have evolved to streamlined checkout processes across multiple merchants.
As the competition for merchant relationships in eCommerce processing intensified, processors who won business in the segment learned to do so by customizing processing applications and tools for the channel. Traditionally, online commerce capabilities have been driven by merchant checkout processes and online advertiser revenue models. Initial payment facilitation for online commerce engines followed the traditional payments flow of physical commerce, with the participation of traditional value chain participants. Some of these have specialized in online commerce enablement through the provision of incremental authentication engines and gateway services that help merchants streamline consumer checkout processes. The traditional payments stakeholder value chain dynamics are at work in this channel as well, with an emphasis on merchant registration of consumers and, as a result, increased agility in steering downstream transactions from merchant sites to alternative (often lower cost) networks.
Check Me Out, Everywhere: After solving basic needs for consumer checkout speed and convenience at the point of transaction, account management solutions have taken their established bases of registered users and solution designs into new multi-merchant applications. Almost all key checkout applications in the first wave of eCommerce innovation focused on solving a specific need within a merchant acceptance environment or marketplace. While this approach ensured a strong tie to merchant needs to ensure their adoption, it also helped to create a network effect within the consumer segments transacting with that merchant, which was key to adoption. As consumers came to the merchant site (or sites, as outlined below) they were presented with an online registration and enrollment process for a simplified checkout process, optimized for that merchant environment, which encouraged initial adoption and downstream use.
Over time, consumers became more comfortable with the simplified process of having a user name and password automatically generate payment and shipping credentials for checkout, which drove growth in registrations and active users in those tools. With a growing population of registered users, online checkout facility operators began to look for other merchants where they could apply that established user base and process. Applying those capabilities to other merchant environments and other online segments, products that began as checkout solutions that were designed to solve the needs of a specific merchant type began to evolve into something that looks much more like a general purpose payment facility.
The most familiar example of this evolution is the growth over the past decade of PayPal, which evolved from a solution designed and implemented primarily to manage payments between small business auction sellers and consumer buyers on eBay into a solution today in which the majority of transactions (and growth) are in general merchant acceptance. Other checkout functions, such as Amazon One-Click and Google Checkout, have evolved along a similar path and have migrated from a marketplace deployment to a multi-merchant model.
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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
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