CHICAGO, Nov. 07, 2014 /PRNewswire/ -- Today, Zacks Equity Research discusses the eCommerce, part 2, including eBay (Nasdaq:EBAY-Free Report) , Amazon (Nasdaq:AMZN-Free Report), Google (Nasdaq:GOOGL-Free Report), Apple (Nasdaq:AAPL-Free Report) and Fidelity (NYSE:FIS-Free Report).
Industry: eCommerce, part 2
Link: http://www.zacks.com/commentary/35215/mobile-adoption-drives-online-payments-security
Although retail ecommerce is the segment that most of us are interested in, it is in fact just a part of the overall ecommerce market. Retailers and service providers generate just 5.2% and 3.1%, respectively of their revenues online, a slightly higher percentage than they did in the prior year. The U.S. Census Bureau categorizes these two segments as business-to-consumer (B2C).
According to the U.S. Census Bureau, the manufacturing sector is the most reliant on e-commerce sales (51.9% of their total shipments), followed by merchant wholesalers (26.4% of their total sales). These two segments make up the business-to-business (B2B) category.
The latest numbers from the Bureau suggest that growth rates across all segments were similar with services being just a bit slower. [All the above data from the U.S. Census Bureau relate to 2012, as published in May 2014.]
The industry is evolving very rapidly, so data collection and evaluation are particularly difficult. Consequently, one has to rely largely on surveys by both government and private agencies.
In this section, we will discuss segments of the ecommerce market than do not relate directly to the retail of goods, and focus instead on payments and security.
Payment Systems
Technology plays an important role in both online and in-store payment systems and both areas are undergoing rapid change. The single-most-important factor driving the change is the increased use of mobile devices by consumers.
In the store, these devices can be enabled with near field communication (NFC), quick response (QR) code, Soundwave or Bluetooth low energy (BLE) technologies. There is also the necessity of an enabled POS system at retail outlets (in some cases) to accept payments using these technologies.
Apart from the simplicity, time savings and security (the card number details aren't shared) of such transactions, there is also the convenience of data storage (information related to multiple cards can be gathered under one umbrella by linking to a single user name).
For online transactions, the security and convenience of the umbrella system -- usually referred to as a digital wallet -- is particularly attractive because it is hard to gauge the security of the retailer's site. Also, the less intrusive the payment system, the more effective it is likely to be for online transactions. That's because first, mobile devices are increasingly being used for purchases and mobile screens are smaller, making it harder to navigate between different pages; and second, because moving away from the retailer's site detracts from the shopping experience, often leading to abandoned carts.
The demographic using mobile devices and online payment platforms is also important. Trends show that younger people, many of whom have been using the Internet from a very early age are likely to spend more online. For example, consumers aged 25-33 (Gen Y) spent an average $563 million online compared to consumers aged 34-47 (Gen X), who spent $535 on average. [Forrester report May 2014]
A Pew Research study from Aug 2013 found that affluent, educated, white Americans were also more likely to use mobile devices for online payments.
In Aug 2014, Aite Group reported that 50% of U.S. smartphone users made at least one mobile payment, 40% purchased in-store and 45% transferred money to another person. Moreover, mobile banking logins topped online logins for the first time in 2013.
A Forrester analyst commenting on mobile banking in 2012 said that banks had focused on mobile remote deposit capture (RDC) that year, so the service had grown rapidly. Aite Group is now saying that bill payment is currently the top priority for banks, with 86% already offering the service or preparing to offer it by 2015-end.
Second on the priority list is checking account apps, which is followed by car loan apps. Mobile shopping capabilities remain a relatively low priority for banks where less than a third have a crystallized product or plan.
Also, 20% of banks plan to integrate their offerings into a single app, 30% into separate ones and the balance remain undecided. This could be the reason Accenture predicts that by 2020, traditional banks will lose 15% market share to online-only players including branchless banks and new technology entrants.
The online payments segment continues to evolve, but here's a quick look at what's available today:
- By far the most successful online payment system and the one that has been around the longest is eBay's (Nasdaq:EBAY-Free Report) Paypal. The business grew leveraging eBay's client base. The unit is being spun off now, which should further increase its flexibility and help growth.
- The recently-launched "Amazon Payments" system is a digital wallet that works on any desktop and Android/iOS-powered device. The system gets its impetus from Amazon's (Nasdaq:AMZN-Free Report) existing user base (including the sticky Prime customers).
- The digital wallet from Google (Nasdaq:GOOGL-Free Report) enables in-app purchase and mobile payments in addition to POS purchases and money transfer. Other than credit and debit card information, users can store loyalty cards, discount coupons and offers that they can apply during purchase. The service can be used on both NFC-enabled and older terminals. Google pushed adoption by making it compulsory for Android development partners. So the service should grow as Google Play sales gather momentum.
- The latest devices from Apple (Nasdaq:AAPL-Free Report) incorporate NFC technology as part of Apple Pay. iTunes customers tend to spend more money online and this is the strength Apple is leveraging to rope in retailers and banks.
- Major credit cards have been adjusting their online payment strategies in recent times, starting out with wallets of their own, but moved on to tabs available on partnered merchant sites. This essentially simplifies the system further, allowing consumers to stay on the merchant site and pay in a single step by clicking the tab.
- The FIS Mobile Wallet from Fidelity (NYSE:FIS-Free Report) is basically a bar code reader that feeds information related to the purchase into the user's smartphone and uses it as a medium to transfer the information to the cloud. Online purchase of merchandise is also possible.
It is believed that high smartphone penetration, higher income and greater digital sophistication will drive increased demand for mobile banking services. Since mobile banking is expected to be the most cost efficient for banks, investment in technology to improve and expand mobile banking services is likely to increase.
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