By Matthias Setzer, CCO, PayU
2018 has been a huge year for partnerships across the payments industry. We’ve seen e-commerce giants like Walmart partnering with payments titans like PayPal, and Swedish payments start up Klarna raising $20 million from global fashion retailer H&M. These partnerships have one common goal: to fight for a bigger share of the wallet.
To form the most successful partnerships though, companies must approach with a rational and considered mindset, starting by identifying the key players that they need to collaborate with. The most profitable partnerships will recognise and capitalise on each other’s strengths to deliver industry leading market offerings.
The changing face of e-commerce
E-commerce across sectors is in the midst of a revolution. The widespread global adoption of online devices means that technology is permeating every aspect of any digital shopping or purchasing experience, creating a host of challenges and opportunities for consumers and merchants alike.
Data collected from those online devices is used by merchants to tailor respective shopping experiences, from the very first targeted ad, to the payment transaction and delivery method. When considering that, according to PwC’s 2018 Global Consumer Insights Survey, social networks ranked number one for finding inspiration for purchases, it is fair to say that consumer experience and the projection of a company’s online brand has never been so important. If businesses are to succeed in the digital era, leaders must ensure that their consumer offering is of a consistently high quality, globally competitive and as hassle free as possible. Adobe’s eConsultancy Study shows that merchants recognise this, with 54% considering customer experience to be their most important focus.
The importance of collaborative partnerships for scalability
One fundamental pillar that is integral to positive customer experience, and consequently merchant success, is the payment infrastructure. Consumers have become accustomed to an ‘always-on’ lifestyle where connectivity and convenience are no longer considered luxuries, but essentials. This ‘always-on’ attitude manifests itself through the expectation for instantaneous service and transactions. This is especially prominent in the e-commerce sector where consumers are able to access services at any time on their smartphone, expecting the same quality of service every time they do. They expect the service at any time, and it needs to be seamless, secure and processed with their locally preferred and habituated payment methods.
The e-commerce market is not one that merchants can afford to ignore. Statista’s research shows that in 2017, retail e-commerce sales worldwide amounted to 2.3 trillion US dollars and e-retail revenues are projected to grow to 4.88 trillion US dollars in 2021. Merchants need a payment infrastructure that is capable of scaling in line with this rapid growth and are increasingly turning to more deeply integrated partnerships with payment providers to ensure they deliver the speed that consumers are looking for.
Astute leadership teams will forge partnerships that place technological innovation at the very heart of a combined business model, allowing them to become market leaders through a combination of reputation built on heritage and new business models that fully capitalise on the benefits of technology.
Modern day payments platforms are increasingly designed with the technology, speed and architecture that merchants need to compete. This will be particularly relevant as they open up into new markets which bring with them an increase in user demand and the associated additional complexities. Partnering with payments providers to build these platforms that scale with growth, maintaining speed and functionality, will be critical for any merchants looking to expand across borders and into new markets.
The consumer benefits
Partnerships between merchants and payment service providers can have huge benefits to the end user. Firstly, and perhaps most noticeably, will be an improved user experience. More sophisticated and modern payment infrastructure will contribute to a fast, frictionless transaction experience. Better connectivity will make international payments seamless.
Secondly, as payment service providers are duty bound to adhere to stringent regulation around data safeguarding, a consistently high quality of security is guaranteed. This leaves the consumer safe in the knowledge that their personal payment details are well protected against fraud and breaches. On top of the pure payments data, data can be shared to facilitate a seamless experience or allow for advanced payment methods like credit. A consumer needs to be safe and assured that his or her data is staying safe and will only be used for the purpose at hand.
Lastly, by partnering with a global payment service provider, it is likely that merchants will be able to offer international consumers a payment method tailored to their local market. By offering this level of interoperability between global transactions and local market nuances, merchants will capture the entire market potential. For example, in Brazil as much as 70% of local payments are made by card payments with instalments and almost a quarter of online payments are made with Boleto Bancario, a cash payment method. If they fail to offer local payment processes, merchants could miss out on significant opportunities to increase revenue.
Creating walled gardens
While the impact of these partnerships is predominantly positive for consumers, as with any innovation or large partnerships, we must not overlook potential downsides. Online devices are generating more and more data that retailers can use to hyper-personalise product offering. As retailers and other large platforms expand to offer a huge range of products and services, allowing customers to consume, buy or enjoy almost anything, there is a real danger that we see the creation of a walled garden.
These all-encompassing models only work if they can capture a majority share of the consumer’s time, money and attention. It is easy to predict that partnerships will become more exclusive, providing certain services only to a specific platform or retailer in order to differentiate themselves from the competition. This may ultimately limit consumer choice, compared to a fully open and interoperable internet.
The future
It’s clear to see that partnerships between merchants or platforms and payment service providers will become an increasingly prevalent trend across the payment landscape. In particular, we are likely to see smaller, more technologically innovative players being acquired and used by their partners to get ahead in the increasingly competitive market landscape.
Partnerships can be unpredictable and challenging, but one thing is for certain, they hold unparalleled opportunity for innovation. Even more so than in 2018, we can expect to see partnerships being formed in 2019 that are bigger, more exclusive and of a higher investment value.
