Marketplaces and Platforms: The Rise of Payment Methods
Not too long ago it was accurate to see separate challenges facing U.S. marketplaces versus those in the rest of the world. In the U.S., a marketplace targeting an installed merchant base had the daunting task of supporting a very large number of payment gateways, but the compensating benefit of nearly universal penetration of credit and debit cards greatly simplifying what payment methods they needed to support. In Europe and the rest of the world the available payment gateways (PSP’s) were much more limited and regional, but there was a big challenge around supporting all the non credit card, typically regional payment methods that consumers prefer. In the German market alone, bank to bank payments make up more than 50% of transactions that happen online, which is a huge contrast to the US.
Things are beginning to change in the U.S., however. Inputting card data into a web browser is relatively easy, but a mobile browser is a different story, and that’s making all participants in the ecosystem more interested in using “one click” payment buttons. In just the last two years we’ve had Apple Pay, Android Pay, Samsung Pay and Visa Checkout, and just this month American Express jumped into the fray with AMEX express checkout.
In addition to the challenge of mobile payments, PayPal is changing the payments landscape in the U.S. (again). Newly liberated from eBay, PayPal now has free reign to pursue its own agenda, and is in the unenviable position of being a threat to nearly everyone. The card networks dislike PayPal as they encourage transactions that avoid the card network rails, with the Visa CEO recently noting on an earnings call: “…that PayPal uses Visa transactions as a vein to “mine from” and possibly disintermediate the relationship between Visa and clients and is something that is “not sustainable for the long term.” Mobile OS providers like Apple Pay also view PayPal as a threat because PayPal as a payment method is cross platform and thus removes tie in to any particular mobile OS or phone. (Total aside: if Apple Pay ever gains real traction from a transaction perspective I could see Google buying PayPal – if it’s still on the market at that time.) Further, PayPal also owns and controls Venmo, one of the fastest growing peer to peer payment methods, which is yet another threat to many of the other payments players.
So the arrival of mobile is changing how consumers actually pay, which is creating the sense that it’s a unique time when there will be real change in consumer payment activities, and thus the potential for a wholesale re-drawing of marketshare. The threat is a newly independent PayPal might be able to capture a good chunk of that given their head start in running their own ecosystem, combined with their cross platform and channel abilities. It all adds up to a surge in interest around non credit card payment methods.
To be clear actual adoption of these new payment methods is currently extremely low and there’s no guarantee they’ll succeed. The switch from web to mobile is moving people from the browser to apps and that in turn could dramatically reduce the number of times someone has to enter their credit card. Three or four years ago you would have used a web browser on SeatGeek to search for tickets and then clicked on the referral link to go to a third party site where you added your credit card and bought the tickets. If you used SeatGeek six times a year to search for and buy tickets that was six different times you put card details into a website. Now on SeatGeek mobile you set up your payment details once and never have to re-enter them again as they’re routing the payment for you behind the scenes. It’s not hard to see in the future having your card on file with a handful of the vertical apps you use most (some basket of Uber, HotelTonight, SeatGeek, Zomato, etc.) and a few dominant horizontal apps (Google, Amazon, Pinterest, etc.). So while mobile makes it harder to input card data, mobile app usage is greatly reducing the number of times per year we input card data at all.
Up till now, U.S. businesses have largely stuck to just accepting credit cards wherever possible. It will be interesting to watch and see if the advent of new payment methods force merchants and platforms to adopt non credit card payment methods in a meaningful way, and if they do, I suspect the first one most would add would be PayPal.
Spreedly aims to help our customers by adding those payment methods that gain real consumer traction through ever more friendly mobile and self checkout tools. We’re extremely interested to see what the payment method landscape looks like in three or more years from today, and can’t wait to continue supporting our customers in their effort to stay relevant as the territory changes.