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April 25, 2022

Online Payment in Apparel: Macroeconomic trends

The shift towards online payment methods away from cash transactions began long before Covid-19, but the pandemic significantly accelerated this trend which is expected to remain even after the crisis resides. Ecommerce and m-commerce are projected to keep growing, as a rising number of consumers are using online platforms to shop instead of visiting retail stores.

Listed below are the key macroeconomic trends impacting the online payments in apparel theme, as identified by GlobalData.

Covid-19

The global Covid-19 pandemic was probably the single most impactful theme on the global economy in 2021. The online payments sector greatly benefited from the pandemic as consumers’ mobility was restricted, and they were forced to rely on online platforms to meet their basic needs. Customers moved purchases online and developed new payments habits, which contributed to the growth of alternative payments such as digital wallets and peer-to-peer (P2P) apps.

The online payments sector gained a new demographic of users as older generations were forced to use online payments to fulfil certain transactions. Long after the pandemic is over, some of the habits that consumers have developed will remain.

Cross-border payments

The current landscape of online cross-border payments is still dominated by MoneyGram and Western Union. But new challengers such as WorldRemit and Wise are challenging these long-established players. Both Wise and WorldRemit offer international cross-border transactions at a lower rate than MoneyGram and Western Union. In 2020, WorldRemit partnered up with Alipay to tap into the Chinese diaspora, an important strategy given that China has the world’s highest mobile payment penetration.

In September 2021, Paytm partnered with Ria’s Money Transfer to make international transfers to and from an e-wallet. Bitcoin and other cryptocurrencies are also emerging as competitors in this space. Cross-border ecommerce allows brands to broaden their customer base, but the ease of payments is essential. Retailers must offer checkout processes that are familiar to buyers and include their preferred payment options to ensure that they do not abandon purchases at the last step.

Electronic payments push

The payments industry, in general, has historically been pushing for cashless societies in the interest of maximising the proportion of transactions that generate revenue. Regulatory efforts to reduce cash use, such as those seen in Italy and India, tend to have the full support of the payments industry. Covid-19 has accelerated this push, with mobile payment services launching and being promoted by governments and companies across the world.

Further government initiatives reveal a strong desire to shift from cash to non-cash payments. In Sweden, the government completed the first test pilot of its digital currency, the e-krona, and the currency is expected to go live within the next five years. Despite cash being the preferred payment method in India, the government took initiatives to promote digital payments and financial inclusion.

Other countries like France are also modernising their payment infrastructure to improve merchants’ acceptance of card payments. Part of Banque de France’s plan is to strengthen the security of cards payments and guarantee that contactless payment capabilities are available across the nation.

Geopolitics and China

China is the world’s largest online payments market by a significant margin, and the key players—UnionPay, Ant Financial, and Tencent—are all tied up to one degree or another with the Chinese government. Chinese players have also all been forging partnerships and making acquisitions to expand beyond China’s borders and move into new markets.

In China, regulators are looking to introduce the same regulations imposed on banks for fintech companies that aim to provide financial services. China, in particular, is looking to reduce the influence that fintechs have on the economy. One company that directly suffered from this is Ant Group.

There is concern that Ant Financial will only be allowed to own 50% of the new company, with the rest being made available to business partners. This could allow the Chinese government to become one of the partners, which will give it access to Alipay’s user data. The Chinese government can use Ant’s data and technology to improve the development of the digital yuan.

Fintech companies that provide financial services in China have so far been able to operate without much regulation, but the Chinese government is planning to change this and through its involvement with Ant Financial, it is sending a warning to the rest of the industry.  

Regulations: Blockchain

Blockchain technology is not regulated in most countries. The approach to the sector is still disjointed at a global level. While Switzerland passed a new set of laws in favour of blockchain called the Blockchain Act in 2020, some countries are still considering what is the appropriate approach to dealing with it.

The countries that are considering developing their own central bank digital currencies (CBDCs) are researching blockchain applications and may impose some restrictions on cryptocurrency usage while authorising the development of the technology.

Regulations: Buy Now, Pay Later (BNPL)

The BNPL sector was able to grow rapidly and provide credit services to consumers without regulatory oversight. Despite presenting itself as a cheaper and more flexible alternative to credit cards, BNPL interest-free credit has the potential to let consumers accumulate debts that they cannot pay off. Regulators are likely to impose regulations on BNPL companies, which are so far unregulated.

In the UK, the Financial Conduct Authority proposed to bring the sector under its supervision. Klarna is already showing some signs of diversification by investing in ecommerce and turning its app into an ecommerce platform, as well as with its acquisition of Hero, a virtual shopping platform.

This is an edited extract from the Online Payments in Apparel – Thematic Research report produced by GlobalData Thematic Research.