Friday , November 15, 2019

After a Quarter Century, E-Commerce Heads Into New Territory

Hard to believe, but e-commerce is a quarter-century old. Along the way, e-commerce radically changed retailing and payments, and now it’s heading into a future with more growth certain but where payments are more in the background.

Visa Inc. this week reported in a blog post that the first e-commerce payment was made on Aug. 11, 1994, on its network. The transaction was a purchase of Sting’s “Ten Summoner’s Tales” album, a spokesperson for Visa says by email. The amount of the purchase was not available.

That first purchase foreshadowed an explosion of online buying that would take place first on PC screens, with mobile devices joining the party years later. Amazon.com Inc., now the behemoth of the electronic marketplace, sold its first books online in July 1995. In 2018, global online retail sales amounted to $2.8 trillion, according to Visa. “Projections show a growth of up to $4.8 trillion by 2021,” Visa’s blog post says.

Today, e-commerce accounts for just over 10% of all U.S. retail sales, according to the U.S. Commerce Department’s Census Bureau. The bureau’s latest retail sales report estimates first-quarter e-commerce volume at $137.7 billion, or 10.2% of the total $1.34 trillion in seasonally adjusted retail sales. While total retail volume grew 2.7% year-over-year, e-commerce volume jumped 12.4% in the first quarter.

Credit cards dominated online payments for years, but other payment forms eventually became viable alternatives. The coming of PayPal routed many online payments through the automated clearing house. According to estimates from payment processor Worldpay Inc., now part of Fidelity National Information Services Inc. (FIS), credit cards accounted for 34% of North American online payments in 2018, followed by e-wallets—many of which are funded by credit cards—in second place at 20%. Debit cards placed third at 19%, followed by charge and deferred-debit cards at 13%.

“The history of payments in e-commerce has been an ongoing evolution away from complexity and friction and toward the integration of the payment into the commerce experience,” payments researcher Thad Peterson, a senior analyst at Boston-based Aite Group LLC, tells Digital Transactions News by email. “As e-commerce has grown over the past 25 years, the payment has moved from an add-on to the back end of a commerce site managed by a payment gateway into a single-step process that ‘pulls the trigger’ for the transaction to close. We’ve gone from manual entry of a card with every transaction, to card-on-file, to one-click buy, and now to an automatic and invisible transaction.”

Those invisible transactions are the cornerstone of payments in gig-economy companies such as Uber and Lyft. Analysts and payments companies expect those types of transactions only to grow as merchants streamline their payment processes and as potentially billions of devices connected by the Internet of Things get enabled for payments. 

“The future of payments in digital commerce will be to continue the evolution to [a] simple, fast, secure and almost invisible consumer process, and information-rich transaction data that adds value to the customer journey for the merchant,” Peterson says. “IoT will be another form factor for digital commerce, but the payment processes that are in place and evolving will not be significantly different in that space, in my opinion.”

The dark side of e-commerce, of course, is online fraud. Without the card present, e-commerce fraud far exceeded fraud rates in face-to-face transactions for years, though improving technology, including the card networks’ 3-D Secure services, has narrowed the gap. 

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