by Tim Attinger
eCom 301 (elective): Evolution of Online Commerce
Lesson 3 Discussion Board: What are the leading multi-merchant eCom checkout solutions, and how might they evolve into everyday payment vehicles outside of eCom? Click here to respond.
In our final class on the basics of eCommerce innovation, we will cover how the marketplace for eCommerce shopping solutions might evolve going forward. As we discussed in our first session, the characteristics of eCommerce that make it so fascinating for study by innovators are a combination of concentration in electronic payments, focused forces from the fundamentals of electronic payments that concentrate on the time of checkout, and the relative ease with which new purchase models from new solution providers may be built and implemented in the marketplace. In our last class covering the introduction to online payments, we will review the changes afoot in the evolution of online checkout tools and their possible implication for the industry.
New Faces at Checkout: A number of new consumer-facing competitors have emerged from the confluence of two major evolutionary trends in eCommerce: 1) alias management, and 2) demand-deposit access. Alias management is direct merchant or merchant agent provision of checkout and consumer account credentials via an alias (username + password) that intercedes between the consumer and their full account credentials during the checkout process. This intercession responds to stated consumer desire for greater convenience in checkout and for greater perceived security. Demand-deposit account (DDA) access, most frequently through bulk settlement within the Automated Clearing House system in the US and through equivalents elsewhere in the world, responds to strong consumer demand to make purchases with funds on deposit. The vast majority of consumer spending in the US is via a combination of direct access to the DDA (with cash, check, and debit) and “transactor” or “charge” behavior on credit products (in which the consumer pays the balance in full from a deposit account at the end of the billing cycle). Not surprisingly, most new payment competition has emerged at the front end of the payments value chain.
Account management and checkout facilities have become the most prominent players in the emerging payments arena, typically covering all modes of payment from prepaid through deposit access to credit facilities. DDA-access provider companies have proliferated most broadly, but some have struggled to gain traction without the unique consumer value proposition tied to merchant checkout and alias management.
Get at that DDA: 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.
Where Do We Go From Here? As eCommerce checkout solutions drive from single-merchant to multi-merchant capabilities, and from registering card accounts while providing access on to driving into alternative routing and multi-merchant capabilities, how will the marketplace for eCommerce payments evolve? How might consumers, who have registered a card or bank account behind a branded alias-management capability, begin to think about that checkout facility as a new payment type, rather than just a checkout function? How will that influence their use to the capability going forward? What might happen if those user name + password alias functions begin to migrate to mobile devices? What if those mobiles meet IP-enabled web terminals at checkout at the physical point of sale? Might one or two eCommerce checkout providers, with a large base of registered users, manage to leap across that great divide that has separated the online and “offline” payments worlds and actually begin to change the payments landscape in a radical way –moving from the segment where consumers make 5% of their purchases to the places where they make the other 95%? We’ll see….
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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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