Leon Muis, Chief Business Officer, Yolt Technology Services (YTS)
Social commerce is on the rise and is transforming the online shopping space. According to a recent survey, over a third (35%) of consumers have already bought through social media. Among younger customers, its popularity is even higher, with more than half (51%) of millennials likely to purchase over social media, whether via established platforms such as Facebook, Instagram and Pinterest, or more influencer-based platforms such as Tik Tok.
And, thanks to the ease of purchasing, more than three-quarters (76%) of consumers have made impulse purchases via social channels and 82% like the convenience it offers. A fifth of those already purchasing through social platforms do so weekly, spending an average of £71 a month.
These powerful figures show why retailers are increasingly moving from using social media to just showcase products to closing the loop and converting customers directly within apps and platforms. Demand is a key driver, as research shows that 71% of consumers would rather complete the sale on social rather than be redirected across to a retail site and payment page to check out.
Understanding the risks of social commerce
Yet, inevitably, there are risks to social commerce. One of the biggest concerns is whether consumers’ sensitive details can be handled as securely when the buying process speeds up-with data breaches, where fraudsters have acquired sensitive customer details, a major factor in this.
There can also be concerns as to whether goods advertised on social media are genuine or not. According to the Anti-Counterfeiting Group (ACG), 31% of shoppers unintentionally bought fake products online in 2019, with 23% of these counterfeit goods being purchased through social media.
Social proof – consumer reviews and so on – can help here, but consumers should be looking at sellers’ credentials, especially when purchasing on a social marketplace, with a critical eye. For example, is the seller actually based where they say they are? Clues like delivery time can be helpful in this instance, if a seller claims to be in the UK, but the delivery is taking a couple of weeks it could be suspicious.
The impacts of fraud
The impact fraudulent transactions can have on businesses and consumers alike is profound in both the short- and long-term. Costs include everything from compensation to the victim, shipping, and insurance costs, as well as chargeback fees, which can reach hundreds of pounds per transaction and incur transaction fees too. Retailers may also need to replace ‘lost’ inventory, as well as manually review suspicious transactions – yet another cost.
The short-term impact is tough enough, with merchants spending 3-5% of their revenue combatting fraud. These are costs that are hard enough to bear in good times, let alone during a pandemic when profit margins have been hit and businesses, especially SMEs, have struggled.
But more costly still, can be the losses incurred longer-term. Customers may opt to shop elsewhere, no longer confident that their sensitive financial details are protected. At a higher level, reputational damage may cause potential investors to walk away from businesses, especially where huge headline-grabbing cyberattacks occur.
Of course, where this happens on a social media platform the impact is even more brutal still since customers may lose faith in both the retailer and the social media platform, impacting their future trust in both, as well as testing the commercial relationships between the social media platform and retailer.
How open banking can boost the payment security of social commerce?
Open banking payments (PIS) help to solve these challenges, since it can boost payment security for social commerce considerably.
Using PIS, social commerce payments can be verified by the customer directly through their bank, using their bank’s own security measures. This means the consumer doesn’t have to enter sensitive bank account or credit card information on the social media website, something they may be wary of doing.
As a result, there’s an additional layer of security for the consumer during the payment process since they are using the payment capability of their trusted bank. Meanwhile the fact that the customer doesn’t need to leave the social media site to pay also improves the customer journey and ensures conversion to payment, reducing checkout abandonment rates as a result.
The verification process allows retailers to identify potential fraud cases far quicker and reduce the number of fraudulent transactions being made, saving them money on insurance and chargebacks at a time where every penny counts. And, longer-term too, the additional security provided by PIS can help businesses feel more confident about expanding without the threat of increasing their exposure to potential fraud.
Social commerce is growing. But retailers also need to remember that social media is where customers are most vocal. If they have a bad experience, retailers not only stand to lose them as customers, but potentially others in their network too.
Give them a great payment experience, however, and they will most likely talk about it with their peers within their social media networks – increasing customers for the retailer as a result.
