E-commerce drives digital payment advances

Dive Brief:

• Digital wallet use in the U.S. is projected to overtake debit cards in transaction value for in-store payments by 2027, according to a Thursday report from merchant payments processor Worldpay.
• Worldpay projects the debit percentage of point-of-sale transaction value will drop to 23% in 2027 from 28% last year, while the percentage point use of digital wallets is expected to more than double to 31% by 2027, from 15% last year.
• “I think most people would be surprised at the growth rate and the penetration of digital wallets not only domestically but really globally,” Worldpay General Manager Jason Pavona said in a Tuesday interview.

Dive Insight:

Cincinnati-based Worldpay provides services to merchants worldwide. This year, it was spun off by Fidelity National Information Services, with a majority stake sold to the private equity firm GTCR.

“Two or three years ago, I think, there was not many people that would have their default being using an Apple phone to pay, and now it's really become ubiquitous,” said Pavona, who oversees North America enterprise for Worldpay.

Thursday’s report also projected a decline in the percentage of POS transaction value for credit cards, from 41% in 2023 to 34% in 2027. That would almost tie it with digital wallets for share of POS transaction value.

Despite the projected shifts away from physical card usage for in-store purchases, U.S. consumers aren’t likely to turn away from credit or debit cards wholesale because they’ll still be tied to digital wallets, according to the report.

“In card-dominated markets, card spend is simply shifting to digital wallets like Apple Pay, Google Pay and PayPal,” the report said. “Viewed in total, card transaction values are at an all-time high and continue to rise,” the report said.

The shift that is occurring, both in the U.S. and abroad, is away from cash to other payment types, Worldpay Head of Global Enterprise Gabriel de Montessus said in a press release Thursday. “It’s important to understand that digital wallets are merely a mechanism for transmitting a payment,” he said.

Digital wallets already accounted for 37% of U.S. e-commerce transaction value in 2023, putting them ahead of credit cards and debit cards at 32% and 19%, according to the report. Worldpay projects further dominance of digital wallets in e-commerce by 2027, with digital wallets increasing their share of transaction value to 52%, and credit and debit cards falling to 22% and 12%, respectively.

Globally, digital wallets already secured the top spot for share of POS transaction value, the report said. Wallets accounted for 30% of POS spending last year, compared to credit and debit cards at 27% and 23%, respectively. And by 2027, wallets are projected to account for 46% of that spending, about $19.6 trillion, more than credit and debit cards combined.

The U.S. Department of Justice sued tech giant Apple on Thursday, alleging that the company had abused its power by preventing rivals from creating competing digital wallets and payments services, as well as by restricting access to the contactless payment functionality on its smart devices.

“Apple actively encourages banks, merchants and other parties to participate in Apple wallet, but it simultaneously exerts its monopoly power to block the same partners from developing alternative payment products and services for iPhone users,” U.S. Attorney General Merrick Garland said at a Thursday press conference.

The DOJ filed the lawsuit, along with 16 state attorneys general, in U.S. District Court in New Jersey. The complaint specifically cited Apple using “its own form of an interchange fee on banks” that increased the cost of using credit cards.

“Apple exercises its monopoly power to extract more money from consumers, developers, content creators, artists, publishers, small businesses, and merchants, among others,” the DOJ said in a Thursday press release. “Through this monopolization lawsuit, the Justice Department and state Attorneys General are seeking relief to restore competition to these vital markets on behalf of the American public.”

Apple pushed back on the lawsuit, calling it “wrong on the facts and the law,” in an emailed statement. “This lawsuit threatens who we are and the principles that set Apple products apart in fiercely competitive markets,” the company said in the statement. “We will vigorously defend against it.”

The tech giant is also facing challenges to its “walled garden” strategy of tightly controlling the hardware, operating system, and apps available on its devices in Europe. Earlier this month, regulation in Europe forced the company to allow rival app stores onto its devices, including one from longtime rival Epic Games, maker of Fortnite.

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By Adyen

In a challenging global economy, digital businesses prioritize cost reduction and scrutinize operations to safeguard profits.

Rising inflation in the past year has made companies cautious about investing in growth, given smaller profit margins. To cope with these challenges, companies are reevaluating their Cost of Payments (CoP) as a smart strategy. To do this effectively, businesses need to identify and understand each component of the overall CoP. This knowledge will enable them to make informed cost-cutting decisions that won’t backfire. 

In this article, we’ll explore how improving payment knowledge can help streamline processes, reduce CoP and boost business growth despite economic difficulties.

Reducing the CoP without sacrificing performance

Navigating the intricate world of payment optimization is already complex. However, maximizing authorization rates while inserting a cost reduction variable into the equation becomes daunting. Challenges arise due to complicated fees and ambiguous reporting, especially when multiple parties are involved in the payment process. This complexity drives up costs.

Consider your payments ecosystem

How many parties are involved in helping your customers pay for your products and services? How many contracts do you need to manage? How many negotiations are required to impact your costs?

Typically, enterprises involve more than 10 intermediaries in processing their payments. This number is when a business expands overseas, leading to higher costs.

Strive to eliminate unnecessary intermediaries, as each stakeholder seeks a portion of the profits. Streamlining the process can help retain more revenue.

Adyen can simplify your global payment operations, eliminating costly intermediaries through a comprehensive end-to-end solution, from risk management to funding settlements, payouts and embedded financial services. Minimizing risk and boosting efficiency translates into cost savings.

Our single platform simplifies the traditional payment value chain and allows Adyen to deliver outstanding performance. By eliminating third parties, we minimize the risk for ‘weak links' to compromise the chain and we can keep speed and efficiency. 

Analyze your Cost of Payments

Understanding your total CoP is crucial. To do this, break down the various components that make up your monthly expenses for processing payments.

• Fraud: includes fraud management system, chargebacks, reputational damage. 

• PSP service: covers processing, acquiring, settlement, payouts, reporting.

• Scheme fees and interchange fees.

• Foreign Exchange (FX).

• Authentication Costs: Include expenses associated with authentication processes, such as 3D Secure or other verification methods.

• Operations (includes reconciliation, dunning, manual order review, etc).

This exercise can be eased when working with partners that operate transparently and provide analytics tools to gain a clear understanding of where expenses occur.

Adyen provides detailed transaction reporting, consolidating data from multiple sources, offering real-time and predictive analytics. 

This provides businesses with a detailed grasp of their payment-related costs, helping them uncover hidden expenses and efficiently manage their spending.

This clarity enables informed decision-making, allowing businesses to optimize payment processes, reduce unnecessary costs and enhance financial control.

Discover our powerful reporting tools.

Rank your efforts 

Digital businesses’ highest costs typically come from card processing and fraud. Focusing on these areas can yield satisfactory results. 

Unraveling Scheme and Interchange fees

Scheme and Interchange fees lie at the core of digital payment costs, which are often overlooked. Have you truly grasped their impact on your expenses?

Can your business influence these costs? Absolutely. But it's only sometimes straightforward, especially with the right expertise. That's where Adyen steps in – to simplify this complexity, trim unnecessary card-related fees and optimize your payment strategy.

Qualify for lower Interchange fees in non-regulated regions like the US

In the US, where interchange fees remain uncapped (whereas regulated debit is capped), card payments can be excessively costly. Transactions with sufficient data carry less risk, reducing interchange fees compared to transactions with limited card information. Understanding which data reduces risk can help you secure lower Interchange fees.

Adyen advises on data inclusion in payment requests, such as billing zip codes, sales tax amounts, or line item descriptions, enabling you to benefit from reduced interchange rates. You can cut interchange fees by up to 1% for US domestic Visa and Mastercard transactions by getting it right.

Optimize payment mix: Find the sweet spot

Revise your payment methods to include cost-effective alternatives to cards without compromising customer experience and approval rates.

Integrating multiple payment methods enhances convenience and transaction success. 

However, managing various payment systems can often result in unforeseen expenses and complexities. Adyen's unified platform offers a streamlined integration process, effectively minimizing hidden costs and simplifying the management of more than *200+ payment methods.

We can advise on shoppers’ preferences and local regulations and help you bypass expensive credit card rates. 

*Adyen supports all of the key payment methods anywhere in the world.

Combat fraud

Ecommerce fraud expenses are soaring, projected to surpass $48 billion globally in 2023, according to Juniper Research. Adyen RevenueProtect is your key to tackling this challenge, countering various fraud types—chargebacks, card testing, phishing, identity theft and reputation damage—significantly impacting your CoP.

Finding the right balance in fraud settings is critical. If settings are too strict you risk rejecting legitimate customers, while overly lenient ones expose you to fraud risks and costly investigations. Partnering with Adyen, a global payments service provider, is your solution.

Consider Strong Customer Authentication. Adyen's Authentication Engine leverages machine learning to maximize approval rates, ensuring security and seamless shopper experiences.

Learn more about authentication.

Explore network tokens

Enhance your card-on-file payments with network tokens, offering improved security. Adyen's network token optimization integrates this technology into our single-platform solution. The biggest value, however, lies in achieving higher authorization rates and reducing fees, which is particularly relevant for enterprise merchants.

Our dynamic system decides whether to use a token or a PAN based on issuer preferences, driven by machine learning and tested with data from leading ecommerce businesses. 

The best part? You can start using network tokens and optimization with your existing payment integration, potentially reducing your overall CoP.

Final thoughts

Merchants have a valuable opportunity to significantly reduce their Cost of Payment (CoP) by implementing the practices outlined above in the article. Integrating multiple payment methods, managing fluctuating transaction fees and adopting local acquiring strategies streamline processes, reduce expenses and foster growth. 

Payment optimization proves to be indispensable in ensuring effortless online payments while minimizing costs, ultimately revealing untapped potential within business operations.

Dive Brief:

• E-commerce behemoth Amazon is testing 15 of its smart shopping carts that allow customers to skip the checkout line at a San Mateo, California, Whole Foods store, according to a Friday report by local newspaper The Mercury News. The California store is the sixth location to test this version of the carts, which were initially rolled out at a Westford, Massachusetts, Whole Foods two years ago.
• The smart carts, which arrived at the California location a few weeks ago, require shoppers to first log in with an Amazon or Whole Foods account using a QR code, according to local TV station ABC 7 News. Once finished, the shopper walks out through a designated smart cart lane and the card associated with their account will be automatically charged.
• “It scans, signs me in. It knows it’s me,” Amazon spokesperson Natalie Banke told the station. The cart uses multiple sensors to detect items within and create a running total displayed to the shopper. Instead of checking out, “all you do is walk out,” Banke said.

Dive Insight:

Seattle-based Amazon first launched its smart shopping cart, designed to speed up trips to its Whole Foods grocery stores, in September 2020, according to a company blog post. After two years of testing at the stores, it rolled out an updated version of the carts.

The tech giant is also tapping biometrics to streamline the checkout process. Last year, Amazon announced it was rolling out its biometric palm recognition payment system to all of its Whole Foods stores across the U.S.

Additionally, two Whole Foods locations implemented Amazon’s Just Walk Out frictionless checkout system two years ago. The technology shows early signs of being effective, as those stores outperformed nearby Whole Foods locations, according a 2022 report by retail analytics firm Placer.ai. But the technology has faced setbacks in Amazon’s own retail stores and as an offering to other brick-and-mortar retailers, according to The Information.

At least one rival is testing similar frictionless technology. Grocery chain Aldi debuted a fully automated checkout system, powered by technology firm Grabango, in a suburban Chicago store last November. 

An Amazon spokesperson did not immediately respond to questions about the test of their smart shopping carts in the company’s San Mateo Whole Foods store.

A proposal by the Consumer Financial Protection Bureau to supervise big tech companies’ payment and digital wallet services has drawn criticism from industry trade groups as the deadline for offering public comment looms.

Among those groups are the Electronic Transactions Association, the Financial Technology Association and the Crypto Council for Innovation, all of which have called for an extension of the comment period. As of Wednesday, only 11 comments had been submitted.

A CFPB spokesperson said the current comment deadline is Jan. 8 and declined to comment further.

The proposed rule, issued by the bureau in early November, would subject Google, Apple and other big tech providers of digital wallets and payments services to laws that banks must abide by in offering such services.

The CFPB has expressed concern with non-bank companies handling digital payments services for consumers as tools, such as peer-to-peer apps, have grown more popular, according to a CFPB press release.

The CFPB aims to protect consumers and their money, as well as level the competitive playing field. The new oversight would apply to companies that handle five million, or more, digital payment transactions annually, the CFPB said.

Eight fintech trade groups, including the ETA, FTA and the American Fintech Council, submitted a letter Dec. 14 that suggested the lack of comments on the proposed rule is due to the “numerous complex issues” the proposal introduces. “Nonbank financial institutions are continuing to review and analyze to provide the Bureau with thoughtful, substantive comments on the Proposal,” they said in the letter.  

The proposal’s inconsistencies leave it unclear which product markets the rule would include and exclude, “leaving substantial confusion about the identity of the 17 companies the rule says are covered,” the groups said in the letter. The CFPB has declined to provide a list of the companies.

The proposal also doesn’t provide “sufficient cost-benefit analysis of the potential impacts of such a rule on these distinct product markets,” the letter added. The trade groups asked the bureau to extend the proposed rule’s comment period by 30 days.

Another trade group, the Crypto Council for Innovation, also called on the CFPB to extend the comment period, citing a need for more time to consider the proposal in light of its novelty and complexity with respect to digital assets. 

In a letter submitted Dec. 26, the Crypto Council said the CFPB’s proposal to broadly include digital asset activity under its exam authority “departs from its historical practices and is inconsistent with the plain language of the Consumer Financial Protection Act.”

It also raises questions about the applicability of broader CFPB payments rules to digital assets and digital asset wallet providers, “creating ambiguity as to what regulations apply to the digital asset market and the CFPB’s supervisory expectations,” the CCI’s letter said.

The Electronic Payments Core of Knowledge, or EPCOR, a not-for-profit payments association, also weighed in via a Dec. 19 letter. That group’s members — which include banks and credit unions, companies providing products and services to financial institutions, and businesses that use payment systems — generally support bringing larger non-bank companies under CFPB supervision with consumer protection in mind, the letter said.

However, “members were neither entirely in agreement with, nor completely against the adoption of any of the proposed market definitions,” related to wallet functionality and annual volume criterion, the letter noted.

A Google spokesperson declined to comment on the proposal. Spokespeople for Apple, Block, PayPal, Samsung and Zelle parent company Early Warning Services didn’t immediately respond to requests for comment. 

Digital payment companies and buy now, pay later providers got a boost from strong e-commerce sales during a robust Black Friday through Cyber Monday shopping weekend.

This month is expected to be the biggest on record for BNPL, according to Adobe Analytics latest e-commerce data on holiday shopping. 

Use of the installment loans reached an all-time high on Cyber Monday, contributing $940 million in online spending, Adobe said. That was a 42.5% increase over last year. The number of items per order that tapped BNPL also increased 11% year-over-year, Adobe said. 

From Nov. 1 to Monday, BNPL has driven a total of $8.3 billion in online spending, Adobe said. Swedish BNPL company Klarna, one of the biggest BNPL providers, said U.S. shoppers placed 29.5% more orders through Klarna this Black Friday compared to last year. Other big BNPL players in the market include PayPal, Affirm and Afterpay.

Adobe is clocking about 17% growth in BNPL use thus far this holiday season, said Vivek Pandya, lead analyst at Adobe Digital Insights, in an interview. About $17 billion is expected to be financed through BNPL this season, he said, up from $14.5 billion in 2022.

For e-commerce, BNPL is “a vector that’s helping drive up growth,” along with other factors like mobile utilization and discounts, Pandya said.

Overall, holiday shoppers spent about 7.8% more online between Thanksgiving Day and Cyber Monday this year compared to last, totaling $38 billion, Adobe said. The Black Friday to Cyber Monday weekend is the biggest shopping window of the season, but it took strong, competitive discounts on goods to produce the levels of growth seen, Pandya said. 

A good deal might nudge a shopper to buy and the ability to break the total into interest-free installments can help close the sale, especially amid the current economic environment, he said. Orders tapping BNPL tend to be 10% to 20% larger than non-BNPL orders, he noted.

“Some of the consumers are going to leverage it just because it’s an easy, flexible way to process a payment and they just prefer it, but some of them are using it because they’re in a more strained financial position and are having to lean on it more,” Pandya said. Researchers with the Federal Reserve Bank of New York noted in September that consumers who use BNPL to make purchases tend to be “financially fragile.”

BNPL exploded during the COVID-19 pandemic’s e-commerce surge and continues to grow, but it still represents a small share of total online spending throughout the year, about 7% to 10%, Adobe said. Credit cards remain the dominant payment method online, Pandya said. Adobe doesn’t track share among large BNPL market players.

Shoppers spent 5.5% more online on Thanksgiving, amounting to $5.6 billion; 7.5% more on Black Friday, totaling $9.8 billion; 7.7% more over the weekend, amounting to $10.3 billion; and 9.6% more on Cyber Monday, amounting to $12.4 billion.

Other payments companies reported robust activity during the holiday weekend. Digital payments company Stripe said Tuesday it processed about 300 million transactions that totaled about $18.6 billion in payment volume between Black Friday and Cyber Monday. “It was the largest ever four-day period on Stripe,” the company said in a news release. About 30,000 Stripe customers worldwide notched daily sales records, the company said. 

Digital payments company Block collected data from merchants who use its Square seller services and those who offer Afterpay’s BNPL services and said 70 million transactions occurred between Black Friday and Cyber Monday, according to a Tuesday report. That’s a 14% increase over last year, the company said.

Buy now, pay later transactions through Afterpay were up 19% year over year. The Afterpay app experienced 16% growth in use during the shopping weekend. For Square sellers, transactions involving Afterpay grew 47% year over year, Block said. The company declined to provide actual figures for 2022 or 2023.