By Philipp Buschmann, CEO and Co-Founder of AAZZUR
Digital payments in eCommerce are clearly nothing new. Ever since its ideation in the late 90s, people have been making payments via websites and platforms. Fast forward to the launch of the App Store in 2007 and almost as soon as people had apps on their phones, they were making payments on them. These payments have almost always been initiated by a third party, with the cost of building their own financial infrastructure a vast and often unnecessary expenditure for ecommerce businesses.
All of this, although rarely called it back then, is a form of embedded finance (I.e. the embedding of financial services via API into traditionally non-financial spaces). The business myself and my team at AAZZUR are in. And it’s thanks to embedded finance and the overall fintech revolution of the last decade or so, that the online payment space is in such rude health. Now almost any business can easily accept and make payments quick and easily. But as 2023 approaches, we’re about to enter a new era of payment processing defined by even greater levels of innovation and more options for customers and merchants alike.
More ways to pay than ever
For years, ecommerce payments have been almost exclusively card payments. But now there’s a plethora of innovative payment methods available at check out. The most notable are digital wallets such as Apple Pay and Google Pay. Like most new payment methods, the main benefit to most customers is convenience. However, for merchants, these are still technically considered card payments so they’re still at the mercy of costly card fees which are occasionally passed onto consumers.
As a result, instant bank transfers via API are becoming increasingly popular. Made possible by Open Banking, these payments allow customers to connect their bank accounts automatically via API to a merchant, giving them permission to take payments. For customers, this saves them time entering card details, while it helps merchants avoid card processing fees. Plus, they’re incredibly secure as they rely on the strong authentication processes that are mandatory for banks.
This customer desire for instantaneous, hassle-free (read: not entering your card details all the time) are also being reflected in the rise of QR code payments and payment links. These too are often powered by API and are normally a form of instant bank transfer themselves. However, for businesses that are unable to get access to a Visa or Mastercard terminal, they can be a particularly useful way to accept payments.
This rise is being powered, in part, by huge innovation on the payment processing side (and the aforementioned Open Banking). Companies like GoCardless, MeaWallet and Marqeta are all making it increasingly easy for businesses to offer new and innovative ways to accept payments. Instant bank transfers are really just the start too and I expect dynamic payment decision making to have a big 2023.
For security-conscious customers that don’t mind entering card details, virtual cards are also proving popular and many leading banks now provide these for online shopping.
Payment products more than just BNPL
Without a doubt, the current superstar of payment technologies is Buy Now Pay Later (BNPL). In the UK, in 2021 BNPL transaction value reached £6.4bn, or 5% of the eCommerce market, with Klarna the most popular provider. According to Bain research, that reflects 60% to 70% annual growth for UK BNPL.
This, along with similar BNPL use in certain parts of the EU, saw Klarna become the most valuable private startup in Europe when valued at $45.6bn in June 2021. However, when the Swedish lender began talks for a new equity round in June 2022, it was valued at as low as $6bn. Many startups have seen similar valuation drops after VC funding comes down to earth after a crazy 2021, but BNPL does seem particularly at risk with rising interest rates and falling consumer spending posing a specific threat to the providers’ business models.
Despite this, BNPL is still going strong and we’re already seeing it appear in new areas of online retail, as seen in Klarna’s arrival as a new payment method on Deliveroo.
Although BNPL takes all the headlines in the instant credit space, B2B lending is definitely something to keep an eye on. There are a number of innovate lending startups that are able to utilise open banking to offer instant credit at checkout to business customers in need of capital.
At my company AAZZUR, we are working with a web services provider to help them offer business loans specifically designed for digital goods and digital marketing. The aim being that these loans are available at checkout and can be used for purchasing the client’s own services as well as helping their SME clients recover from the impact of the pandemic. By embedding the services of a lending fintech into their customer journey, they’re able to provide customers with a seamless and quick application process, followed by quick evaluation with fast results.
I expect to see more and more B2B businesses adding similar innovation to their payment flows in the future.
The real innovation happening in value-add services
The most exciting innovations in payments, however, aren’t really about payments at all. It’s about value-add financial services offered at checkout or even earlier in the payments journey.
Now, thanks to embedded finance, online retailers from any sector can gain access to new financial products to offer their customers including business loans, cards, virtual accounts, cross border payments, foreign exchange and more.
They can essentially become a one-stop-shop for financial services, allowing their customers to conduct all of their financial business on their site and platform. These can be products that enhance their current offering but they can also be entirely new products and revenue streams.
If they choose, online retailers can even become banks themselves – something modern consumers have an appetite for. According to one report from Cornerstone Advisors, most consumers under the age of 55 would be willing to open a bank account with non-banking providers like Amazon, Google, Starbucks and Uber.
Plus, these services can be offered exactly at the point of need. Triggered by certain payments or spending patterns. Think foreign exchange offered upon the purchase of a flight; short term extreme sport insurance after the purchase of ski pass; or wealth management services triggered by high value purchases. This is immensely useful for their customers but also leads to much higher closing rates on the offers for merchants.
It’s this level of personalisation where the next stage of payment innovation truly lies. Think how Google uses data to monetise search and how social media platforms use it to monetise relationships. Soon online retailers will be able to do the same with spending.