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Global Developments in Online Payments

The Covid-19 pandemic has pushed the world toward a digital economy, with most business transactions done online. This is especially true for retail sales. According to a United Nations (UN) study, consumers from both developed and developing countries shopped online more often during the pandemic and intended to continue doing so. Global eCommerce sales reached $876 billion in the first quarter of 2021, according to the Adobe Digital Economy Index. By the end of 2021, the forecast is that it will reach $4.2 trillion.

Top Five Global eCommerce Digital Payment Methods

eCommerce necessitates the use of digital payment methods. In 2020, digital wallets were the chosen payment method for almost half or 44.5 percent of worldwide eCommerce transactions, according to the Global Payments Report.

Digital wallets securely store payment credentials used for purchases. The wallets are topped up through wallet-to-wallet transfers, bank transfers, credit card transfers, or cash payments to in-person outlets. Examples are Amazon Pay, WeChat Pay, and Alipay. The most popular digital wallets are also mobile wallets and are accepted online, in-app, and in-store. The difference with mobile wallets is that these only work in a specified mobile operating system. Examples are Google Pay, Apple Pay, and Samsung Pay.

Digital wallets are popular because all economic brackets can use them. Those who have access to banking simply top up their digital wallets with their credit cards or through bank transfers. People who do not use banks can top up their wallets by simply paying cash to an authorized store like 7-Eleven.

Credit cards were the second most popular eCommerce payment method globally in 2020, used in 22.8 percent of transactions. These are among the traditional payment methods, being around for more than half a century, but have easily transitioned into the digital age. Financial institutions issue credit cards that allow consumers to purchase on credit. Examples of globally recognized credit cards are Visa and Mastercard.

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Credit cards are only accessible to the segment of the population that qualifies for the minimum income that each card requires. These are also the people who can afford to purchase on credit because they have a regular monthly income. Credit companies and eCommerce sites often tie up to offer more enticing benefits to such consumers. For instance, a credit-card promotional offer in Singapore gives cashback on purchases and is linked to an eCommerce site that offers discounts on various brands.

Debit cards ranked third, used in 12.3 percent of global eCommerce payments in 2020. These are issued by financial institutions but do not involve credit. Instead, payments are directly taken from the consumer’s account.

Bank transfers were the fourth most popular payment method, used in 7.7 percent of global eCommerce payments in 2020. This process also deducts payments directly from the consumer’s bank account through the bank’s retail banking application. No card is necessary.

Cash on delivery (COD) was the fifth most popular mode of payment, used in 3.3 percent of commerce payments worldwide in 2020. This is the choice of those who are unbanked and those who do not trust online stores enough to send payment in advance. Also, some informal online sellers cannot process digital payments and accept only COD payments.

Charge and deferred debit cards tied with the COD method for fifth place. Issued by financial institutions, these provide limited credit with no interest. The difference is that outstanding balances must be paid in full at specified fixed intervals.

Other Global eCommerce Digital Payment Methods

Buy now pay later (BNPL) ranked sixth in 2020, used in 2.1 percent of global eCommerce payments. These services, such as Afterpay, Affirm, and Klarna, offer interest-free installments or a lump-sum payment for the purchase after a specified period.

The Global Payments Report forecasts that by 2024, BNPL will increase to 4.2 percent of usage. Apart from digital wallets, it is the only payment method seen to increase in four years while other methods will decrease.

Direct debit, used in 1.2 percent of 2020 global eCommerce payments, is a method where consumers permit the online seller to withdraw payment from their bank account on an agreed date after the purchase. Prepaid cards, used in 1.1 percent of eCommerce payments, are issued by financial institutions and are either funded once or reloadable. These were used to distribute COVID-19 relief aid in the U.S. in 2020.

Postpay, used in 0.9 percent of 2020 global eCommerce payments, is a service that enables consumers to order online and pay in full later through an ATM or an affiliated store. This is most popular in Japan, where it accounts for 10 percent of eCommerce payments, and in Brazil where it accounts for 5.4 percent of eCommerce payments.

Prepay, used in 0.4 percent of global eCommerce payments in 2020, include eNETS, Paysafecard, and Neosurf. Consumers do not need to have a bank account nor provide personal information. They can purchase vouchers that are then used to pay online merchants.

Online consumers used other methods in 0.4 percent of global eCommerce payments in 2020. These included billing through mobile carriers and cryptocurrencies.

Other modes of online payment will still emerge in the coming years to bridge eCommerce retailers and the vast population of consumers worldwide. The varying economic conditions will spur the development of appropriate paying schemes to meet the needs of consumers.

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