A Blog by Jonathan Low


Nov 25, 2019

The Battle Over Paying For Online Shopping

Tech and financial companies are looking for ways to keep more consumers - and their data - inside their own electronic ecosystems in order to raise profits - and collect more data to reuse. JL

Telis Demos reports in the Wall Street Journal:

Processing payments is a commoditized, low-margin business. To grow and expand margins, payment companies have to turn the type-in-your-card-number checkouts into clicks on their buttons. Two-thirds (of online payments use) manual entry—fumbling for a card and typing in the numbers, or storing  numbers with a merchant for repeat use. By clicking a pay button, the customer chooses a payment method they have stored. It can collect more data on the shopper or open other services. Buttons are a key way to turn a standard transaction into a more lucrative one for the payment company.
A battle for the future of payments is being fought in the shopping cart.
Last month, Visa, Mastercard, American Express and Discover Financial Services launched a new click-to-pay online shopping button. Few consumers probably noticed; the new button appeared only on a couple of sites. But in the coming years, shoppers may be bombarded with marketing around that button, as well as for ones from a long list of tech giants, including PayPal Holdings, Apple, Amazon.com, and Alphabet’s Google. The objective is to turn more of the familiar type-in-your-card-number checkouts into clicks on their buttons.
How exactly consumers pay in the online checkout line will increasingly be a hot-button topic for investors. Digital-payment companies have ridden growth and attention to soaring valuations over the past few years, buoyed in large part by U.S. shoppers’ increasing inclination to do their buying online or via mobile devices. E-commerce sales are now nearly $600 billion—still just a fraction of the $5.5 trillion in total U.S. retail sales, according to eMarketer.
That is an eye-popping market opportunity. But merely processing payments is a highly commoditized, low-margin business, and merchants who pay for it drive harder bargains every year. So to grow and expand margins, payment companies have to find ways to move up the value chain.
Enter buttons. Only around one-third of online commerce today outside Amazon.com is done via the buttons that typically sit next to the traditional checkout form in a web or app shopping cart, estimates analyst Lisa Ellis at MoffettNathanson. That leaves two-thirds to manual entry—fumbling for a card and typing in the numbers, known as “guest checkout”—or storing those numbers with a merchant for repeat use, like one does at Amazon, known as “card on file.”
By instead clicking a pay button, the customer goes to an external widget from that payment provider where they choose a payment method they have previously stored in what is sometimes called a digital wallet and doesn’t involve remembering any card numbers. This potentially does several things for the payment provider: It can reduce fraud, earn payment firms a slightly bigger share of the transaction fees, collect more data on the shopper or open a window to other services. Buttons are a key way to turn a standard transaction into a much more lucrative one for the payment company.
Not all merchants love third-party buttons. Some prefer to collect payment information themselves—notably Amazon, which also offers an Amazon Pay button to other merchants. But for many sellers, buttons from third parties can help with the problem of online-shopping-cart “abandonment.” On Black Friday in 2018, for example, over 80% of carts were left with unpurchased items, according to research firm Barilliance. In a study conducted this year, about 6% of carts were abandoned specifically because the merchant didn’t offer enough ways to pay, according to Baymard Institute, which tests the usability of e-commerce sites.
Today, PayPal is the behemoth of buttons. MoffettNathanson estimates that of the one-third of all non-Amazon purchases that aren’t done via guest checkout or card-on-file, the vast majority are via PayPal’s button. Morgan Stanley analysts found that in September, 369 of the top 477 internet retailers offered the PayPal button in their carts. No other button even hit 70. PayPal has added new features too, like offering its Venmo wallet as a button, and a “smart” button that can present different payment options based on a customer’s history or location. It is also bringing buttons to online bill pay.
That hasn’t discouraged others, though, who still see a big opportunity. For tech companies, buttons are a way to enmesh their devices and other offerings deeper into customers’ lives and as a beachhead for selling other financial services. Apple Pay users can use thumbprints on an iPhone to complete a transaction and can pay with Apple Cash or the Apple Card. Google Pay is integrated into its Chrome browser and in theory could connect to a future Google-partnered bank account. Other startups, such as Affirm or Afterpay, offer noncard forms of credit via the checkout cart.
The card networks now have the task of rolling out their new button—which will supplant prior individual buttons offered by the networks, such as Visa Checkout and Masterpass—and educating consumers. It is based on a standard known as secure remote commerce, or SRC, created by the same group that established the chip standard for physical cards. If SRC is widely adopted, it could help make standard card payments easier and safer generally. But even if it is slow to take off, the card networks remain in a strong position from investors’ point of view. Many button payments, including PayPal’s, are ultimately done with a consumer’s card.
Craig Maurer of Autonomous Research said that the real competition isn’t so much between buttons but against basic guest checkout forms and the risk they create that people simply give up before making a purchase. The entire payments sector wins if fewer shoppers check out before checking out.


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