The e-commerce industry has seen tremendous growth in the last 10 years, growing from under $100 billion to more than $300 billion right now. Despite the stellar growth, most retail transactions are happening outside the World Wide Web. E-commerce accounted for less than 10%Â of total retail sales during the third quarter of the current fiscal.
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The shift to the online world of sales has been happening not just in the U.S. but all over the world. Though emerging economies need to increase their Internet penetration to a much higher level for e-commerce to grow faster, that will eventually come because Internet access will only grow from here. Though faltering at times, that’s the general direction emerging countries are moving toward, which can be seen from steady e-tail growth from those markets as well.
Source: Smartinsights
But as the world moves toward a "hybrid shopping model" that involves both online and offline shopping, payment methods and the security thereof now more than ever play a crucial role in the growth of e-commerce. And that’s why people are still averse to using their mobile wallets to conduct transactions. This year, only one-third of all online payments were conducted over mobile networks. That despite the fact that smartphones continue to sell in the hundreds of millions each year.
It might be a psychological decision more than anything, but people tend to want to see their transaction details on a large screen before they click the "proceed to pay" button.
This is one major point that mobile wallets are attempting to remove and, for that reason, this industry has only seen feverish activity in the last two years. There is now a considerable amount of time, money and energy being invested in digital wallets with Apple (AAPL, Financial) Pay, Paypal’s (PYPL, Financial) Venmo, Google Pay and Samsung (XKRX:005930, Financial) Pay throwing their hats in the ring.
As these companies enhance the technology behind digital wallets, people are going to find it easier to effect their transactions using their smartphones. The transition may take a few years, but as it gets easier and people get more comfortable with the idea, the volume of mobile transactions as a percentage of total retail sales will continue to grow.
The biggest beneficiaries of this evolution will be retailers with a strong presence in the physical as well as virtual space. It hasn’t happened until now because we’ve mostly been using the same payment technologies and methods on our smartphones as we did on our PCs, which isn’t ideal.
What was sorely needed was two different systems that would work in entirely different ways but achieve the same results – easy, secure payments made in seconds. With mobile wallets, the same convenience of web payments on a PC have been brought to smartphones but in an entirely different way. It is that technological leap that will drive mobile wallet usage forward over the long haul.
As of now, PayPal, with its Venmo, and Apple Pay will benefit the most from the multipronged growth of mobile-based transactions, improving digital wallet technologies and greater acceptance by both merchants and consumers. Both companies have user bases numbering in the hundreds of millions. While the one has the advantage of already being in the Web payments space, the other has the advantage of device user base.
PayPal’s Merchant Services already account for more than 80% of its TPV (total payments volume) while Apple’s record-breaking sales since the middle of last year took it above the billion-units-sold milestone this year.
Each will play to its strengths and enjoy robust growth from mobile transactions, and we’ll see that trend play out over the next several years until their positions are cemented at the top of the mobile wallet ecosystem.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
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