Samba Natarajan, Senior Vice President, Growth Markets, PayPal
Technology trends are quickly evolving, and consumer expectations will likewise grow more complex. What has not changed is the pursuit of increased convenience in payment transactions.
With rising global inflation and a recessionary outlook this year, businesses must recognize the emerging payment trends to build resilience and weather upcoming headwinds. Businesses that are well-versed and well-prepped to ride on these trends can pivot their strategies accordingly when challenges arise.
1. The rise of smart and eco-conscious consumption requires more diversified payment options.
Consumers are starting to experience the impact of the economic downturn this year and beginning to turn to more conservative shopping habits. Globally and closer to home in Japan, shoppers are starting to embrace the Buy Now, Pay Later payment method (BNPL). According to the survey conducted by PayPal and Paidy on “The Future of Japan’s Shopping[1],” respondents who use BNPL services in Japan feel that paying for goods after delivery is the most beneficial (32.4%), followed by cash back and other promotions (25.2%), and being able to buy what they want in timely manner even if they do not have cash on hand (20.6%). Providing flexible payment options can help incentivize more customers to go through with their transactions at checkout.
Meanwhile, young consumers are becoming more eco-conscious, prioritizing social and environmental causes in their purchase decisions. Three out of four millennials are willing to pay more for sustainable products[2]. In Japan, more and more consumers cite Sustainable Development Goals (SDGs) as a key factor in their shopping decisions, with 43.5% of respondents expressing that they are socially responsible in their consumption behavior.[3] Hong Kong is experiencing similar trends with around 61% of survey respondents willing to pay more for eco-friendly, sustainable products[4].
On the same vein, the accelerated demand for sustainable fashion and affordable luxury has given rise to a number of digital platforms reselling pre-loved luxury items[5]. As more consumers seek out sustainable fashion, they are becoming increasingly inclined towards purchasing pre-loved luxury items instead of fast fashion, with the aim of reducing their carbon footprint. To cater to this growing demand, brands like Zalora are offering flexible payment options like BNPL, making higher-priced items more accessible to a wider range of consumers. Fueled mostly by younger digitally savvy generations and their desire for more sustainability, BNPL will continue to grow hand-in-hand with sustainable fashion in the years to come.
Foreseeably, diversified payment options and reward programs that enable responsible purchases will deliver added value for both consumers and merchants on their shopping journey.
2. Consumers expect more integrated, seamless, and personalized payment experiences.
Electronic payments are at the center of transaction processes today, and societies are becoming increasingly cashless. Statistics show that global cashless payment volumes will increase by more than 80% from 2020 to 2025, and Asia Pacific is at the forefront of that growth[6].
In Hong Kong, while credit cards are still the most-used payment method for online purchases, it is expected that 45% of online transactions will be completed via digital wallets by 2024[7]. Transactions using digital wallets on smartphones are predicted to account for more than half of all e-commerce payments worldwide by 2025[8], making them pivotal as a payment “front end.” In Japan, a survey showed that people are increasingly "choosing a payment method with a focus on rewards points (30.6%)" and "paying with a smartphone (20.9%)[9]". In Southeast Asia, eight in ten consumers are now digital, driven by the proliferation of alternative digital payment options such as BNPL and e-wallets[10].
Such digital transformation across markets suggests there is a strong need for more personalized payment experience on mobile devices. Embedded financial services, such as positioning insurance products alongside tickets on travel booking platforms, will be welcomed across multiple consumer touchpoints. A customized, nuanced retail journey will also better recognize individual needs, connecting customers to the brand.
3. Merchants and consumers need to stay proactive in protecting themselves from cybersecurity threats.
Financial crime will continue to be a threat in 2023. For instance, the number of fraud cases in Hong Kong tripled in 2021 to over 19,000 compared to 2018, with nearly 30% related to online shopping[11]. In Singapore, the National Crime Prevention Council reported that phishing scams occurred the most during the holiday season in December 2022, followed by e-commerce scams[12]. This drives the growing need for experts in data protection.
Bad actors may take advantage of the rise of digital wallet for crimes such as authorized push payments (APP), which makes cybersecurity across payment networks even more crucial. Cross-border transactions also have the potential to enable sanctions evasion and money laundering. Mitigating these risks will require a collective effort, and e-commerce merchants need more than ever a trusted security partner to safeguard their precious data. Buyer and seller protection offered by payment platform is a critical component businesses and consumers must look out for.
How can e-commerce merchants capitalize on evolving payment trends?
1. Understand your audience and customize the checkout experience
A customized shopping experience is just as important as the product itself. At the checkout stage, customization means making the preferred payment methods available to allow for less cart abandonment and increased brand loyalty.
In China, livestreaming shopping is becoming increasingly mainstream[13], where anchors encourage shoppers to make quick purchases with discounts available for a limited time. It all happens on a single mobile app interface – shoppers can view products, pop questions, and place orders all on the same page during the live stream. Businesses targeting Chinese customers therefore should adapt to such preferences and provide embedded payment options for easy transactions.
In Southeast Asia, creative payment offerings are emerging fast. E-commerce platforms, ride-hailing services, and tech providers including the likes of Shopee, Grab, and Sea, are offering customers short-term loans to offset costs on products and services[14]. In 2023, merchants should continue to look out for what consumers need and customize their offerings accordingly.
2. Reframe payments as a revenue booster and an opportunity to explore cross-border.
By providing an integrated payment experience of unmatched speed and convenience, merchants will see a tangible difference in their revenue. In practical terms, this could translate into offering one-click mobile payments, QR codes, embedded add-on services, easy foreign exchange rate conversion, as well as fast checkout.
The outlook for cross-border e-commerce remains optimistic[15]. Partnering with a global payments partner creates an opportunity for merchants to explore cross-border trade as an enabler for growth. In 2023, consumers will be more cost-conscious and as a result, they may look beyond their shores for better-priced products. With the right payments partner such as PayPal, merchants can conduct business in more than 100 currencies and 200 countries using a single, simple payment solution. Extending reach in different markets will unlock more opportunities.
3. Expand your brand beyond your website.
Over 4.62 billion people across the world use social media today[16], and social selling has become an essential part of e-commerce strategies. Merchants should rethink their branding opportunities and go beyond conventional websites – well-operated social accounts and meaningful partnerships with influencers who stand by your brand ethos can further consumers’ emotional connection to the brand. In addition, an online-to-offline (O2O) retail approach will attract more traffic through omni-channels, taking brand exposure to the next level.
Stay the course in 2023
As we step into 2023, payments will continue to play a crucial role in helping businesses expand. Those who truly listen to what consumers are demanding on the ground and move fast with the ever-changing needs will find themselves more resilient in a tighter economic environment.