A new era for payments – the evolution of commerce models

By Cesar Medina, Global Head of Payments, Mphasis

Payments and commerce have always evolved at the pace of wider culture and technology trends. Today, Web 2.0 technologies, including Cloud, cognitive and mobile, and distribution channels including social media, video, and gaming are relatively mature across many use cases. This has enabled an explosion of new commerce and payments models reaching mass distribution. Additionally, the pandemic has hugely accelerated digital adoption across the world. This means that previously nascent channels, apps and websites, have been flooded with new users, who will inevitably impact the previously established standards for payments.

As industries fully mature into the digital economy of the Web 2.0 era we are seeing the contours of what the decentralized Web 3.0 era may disrupt. The future of commerce depends on the channels through which customers and retailers engage. At the confluence of these two are the communities upon which Web 3.0 commerce will be built.

Commerce Models & Commerce Platforms

There are two lenses through which we can look at the future of payments – commerce models and commerce platforms. Depending on the lens, the Job to Be Done of payments changes. Commerce models refer to the way in which customers discover and buy products from sellers, with different channels dominating different commerce models, while commerce platforms are the underlying tools and providers that enable sellers across various commerce models. As sellers undertake one or more of these models they will need to adapt accordingly, as each channel brings a complex ecosystem of user culture, capability providers, and tools that sellers need to navigate to be effective and efficient. Arguably, these ecosystems are tantamount to digital nations with national capabilities and customs.

Delving deeper into the key commerce models, there is social commerce – encompassing the buying and selling of goods through social apps, such as social networks or messaging platforms. Channels can include WhatsApp, Facebook, Instagram, TikTok and Snapchat, whereby the payment is either embedded (e.g. WhatsApp), hosted (as in the case of payment facilitators) or off-platform (e.g. direct messages that include a payment handle).

The Marketplace 1.0 model is geared towards sellers and marketplace owners (1P Sellers) posting, and customers discovering and buying goods, via the marketplace (e.g. Amazon, Alibaba). This model has evolved over time to support other methods of discovery such as search ads, but the experience still relies mainly on hosted payments where the marketplace manages payments as part of its marketplace services. Marketplace 2.0, meanwhile, allows merchants to create new discovery and shopping experiences by enabling merchants and customers to use social features on the marketplace. This allows merchants and users to enable new forms of buying (e.g. group buying) which have different discovery dynamics than traditional marketplaces. The channel in this case is still a proprietary marketplace that uses its own payments capability, but provides additional features to ensure the marketplace stays relevant.

Last but not least, we have the owned and hosted digital storefront models, which are primarily built using low-code or no-code commerce platforms providing ‘commerce in a box’ tools. These utilise channels such as search ads, email, OTT video ads and other digital and traditional media and marketplaces. In this case, payments are either hosted by the platform (usually through a third party), embedded (e.g. ShopPay on Shopify) or delivered by a payment service provider such as JP Morgan or Stripe that is seller or platform enabled.

Commerce platforms can broadly be categorised into aggregators, which are platforms that bring customers to sellers and enable discovery and payment (notable examples include Amazon, Google Commerce and Shopify) and facilitators, which are platforms that make it easier to sell across channels, such as GoDaddy, Amazon (through its Amazon Pay offering), Stripe, or Payoneer.

Increasingly, many of the abovementioned channels are owned by commerce aggregators or facilitators. As this convergence happens, merchants that have built communities through social commerce or Marketplace 2.0 offerings may re-think their relationship to established players. The role of merchants, influencers, and culture creators in building and sustaining commerce ecosystems will collide with new digital technologies, such as blockchain and AI. The outcome of this collision will drive the first at-scale use cases of Web 3.0 for commerce – but those efforts are only now starting.

What this means for sellers & customers today

Sellers will need to decide which channels and platforms they engage with customers on and think of their channels as ‘digital nations’, making the same calculations that businesses made years ago when seeking to enter new markets. Decisions include whether to build an offering from scratch, partner with someone with a strong presence in that ‘nation’, or partner with the government (the platforms). This may entail investing in data and orchestration capabilities that enable them to dynamically select the best commerce stack for each offering.

Some digital nations will require acceptance of the government (platform), payment method (usually a platform embedded option) and the democratic (culturally relevant) payment method. If the complexity and cost of acceptance are too high for a particular commerce model, sellers need to adapt. Today, payments orchestration tooling allows sellers to do that across their payment providers but not their full model, so a seller may need to shift from an owned digital storefront to a hosted digital storefront that has native distribution to commerce aggregators. This way, while the payments cost may potentially be higher, the seller has one point of integration and broader distribution for all their products. Commerce orchestration – the optimal presentation and fulfillment combination for a product for a specific customer across digital nations – is starting to appear in ‘headless’ commerce models. As digital nations grow in number and in size, commerce orchestration will grow in importance.

The right strategy for success

PwC forecasts European cashless transaction volumes to grow by 64% from 2020 to 2025 and by a further 39% in the subsequent five years. With this in mind, what are the main factors to watch out for as we enter the late stage of Web 2.0 commerce and begin moving towards a new, Web 3.0 era of commerce?

For customers, the platform-channel convergence is likely to lead to more personalised product recommendations that can be paid for and fulfilled with almost no friction. However, with any innovation come new risks. First, as sellers leverage algorithms to optimise their wares by channel, there may be products and services that are not available on every channel. Second, as customers transact on top of commerce platforms, they may revolt against platform specific payment methods.  This is a risk that may continue into Web 3.0 as coins and chains fight for adoption and high cost or high friction cross-currency transactions deter mass adoption.  Visa’s Universal Payments Channel shows one way in which the industry is looking to address this challenge.

That means that, for sellers, reconciliation of payments, channel data, and customer data will be critical, as will creating the right offer for the right channel and customers. This will require identifying the most fitting channel and non-channel partners (such as issuers and community partners). Orchestrating pricing, availability, and content across channels will become integral to success, and commerce channel gateways and integrators will be another crucial element of this.

By Cesar Medina, Global Head of Payments, Mphasis

Payments and commerce have always evolved at the pace of wider culture and technology trends. Today, Web 2.0 technologies, including Cloud, cognitive and mobile, and distribution channels including social media, video, and gaming are relatively mature across many use cases. This has enabled an explosion of new commerce and payments models reaching mass distribution. Additionally, the pandemic has hugely accelerated digital adoption across the world. This means that previously nascent channels, apps and websites, have been flooded with new users, who will inevitably impact the previously established standards for payments.

As industries fully mature into the digital economy of the Web 2.0 era we are seeing the contours of what the decentralized Web 3.0 era may disrupt. The future of commerce depends on the channels through which customers and retailers engage. At the confluence of these two are the communities upon which Web 3.0 commerce will be built.

Commerce Models & Commerce Platforms

There are two lenses through which we can look at the future of payments – commerce models and commerce platforms. Depending on the lens, the Job to Be Done of payments changes. Commerce models refer to the way in which customers discover and buy products from sellers, with different channels dominating different commerce models, while commerce platforms are the underlying tools and providers that enable sellers across various commerce models. As sellers undertake one or more of these models they will need to adapt accordingly, as each channel brings a complex ecosystem of user culture, capability providers, and tools that sellers need to navigate to be effective and efficient. Arguably, these ecosystems are tantamount to digital nations with national capabilities and customs.

Delving deeper into the key commerce models, there is social commerce – encompassing the buying and selling of goods through social apps, such as social networks or messaging platforms. Channels can include WhatsApp, Facebook, Instagram, TikTok and Snapchat, whereby the payment is either embedded (e.g. WhatsApp), hosted (as in the case of payment facilitators) or off-platform (e.g. direct messages that include a payment handle).

The Marketplace 1.0 model is geared towards sellers and marketplace owners (1P Sellers) posting, and customers discovering and buying goods, via the marketplace (e.g. Amazon, Alibaba). This model has evolved over time to support other methods of discovery such as search ads, but the experience still relies mainly on hosted payments where the marketplace manages payments as part of its marketplace services. Marketplace 2.0, meanwhile, allows merchants to create new discovery and shopping experiences by enabling merchants and customers to use social features on the marketplace. This allows merchants and users to enable new forms of buying (e.g. group buying) which have different discovery dynamics than traditional marketplaces. The channel in this case is still a proprietary marketplace that uses its own payments capability, but provides additional features to ensure the marketplace stays relevant.

Last but not least, we have the owned and hosted digital storefront models, which are primarily built using low-code or no-code commerce platforms providing ‘commerce in a box’ tools. These utilise channels such as search ads, email, OTT video ads and other digital and traditional media and marketplaces. In this case, payments are either hosted by the platform (usually through a third party), embedded (e.g. ShopPay on Shopify) or delivered by a payment service provider such as JP Morgan or Stripe that is seller or platform enabled.

Commerce platforms can broadly be categorised into aggregators, which are platforms that bring customers to sellers and enable discovery and payment (notable examples include Amazon, Google Commerce and Shopify) and facilitators, which are platforms that make it easier to sell across channels, such as GoDaddy, Amazon (through its Amazon Pay offering), Stripe, or Payoneer.

Increasingly, many of the abovementioned channels are owned by commerce aggregators or facilitators. As this convergence happens, merchants that have built communities through social commerce or Marketplace 2.0 offerings may re-think their relationship to established players. The role of merchants, influencers, and culture creators in building and sustaining commerce ecosystems will collide with new digital technologies, such as blockchain and AI. The outcome of this collision will drive the first at-scale use cases of Web 3.0 for commerce – but those efforts are only now starting.

What this means for sellers & customers today

Sellers will need to decide which channels and platforms they engage with customers on and think of their channels as ‘digital nations’, making the same calculations that businesses made years ago when seeking to enter new markets. Decisions include whether to build an offering from scratch, partner with someone with a strong presence in that ‘nation’, or partner with the government (the platforms). This may entail investing in data and orchestration capabilities that enable them to dynamically select the best commerce stack for each offering.

Some digital nations will require acceptance of the government (platform), payment method (usually a platform embedded option) and the democratic (culturally relevant) payment method. If the complexity and cost of acceptance are too high for a particular commerce model, sellers need to adapt. Today, payments orchestration tooling allows sellers to do that across their payment providers but not their full model, so a seller may need to shift from an owned digital storefront to a hosted digital storefront that has native distribution to commerce aggregators. This way, while the payments cost may potentially be higher, the seller has one point of integration and broader distribution for all their products. Commerce orchestration – the optimal presentation and fulfillment combination for a product for a specific customer across digital nations – is starting to appear in ‘headless’ commerce models. As digital nations grow in number and in size, commerce orchestration will grow in importance.

The right strategy for success

PwC forecasts European cashless transaction volumes to grow by 64% from 2020 to 2025 and by a further 39% in the subsequent five years. With this in mind, what are the main factors to watch out for as we enter the late stage of Web 2.0 commerce and begin moving towards a new, Web 3.0 era of commerce?

For customers, the platform-channel convergence is likely to lead to more personalised product recommendations that can be paid for and fulfilled with almost no friction. However, with any innovation come new risks. First, as sellers leverage algorithms to optimise their wares by channel, there may be products and services that are not available on every channel. Second, as customers transact on top of commerce platforms, they may revolt against platform specific payment methods.  This is a risk that may continue into Web 3.0 as coins and chains fight for adoption and high cost or high friction cross-currency transactions deter mass adoption.  Visa’s Universal Payments Channel shows one way in which the industry is looking to address this challenge.

That means that, for sellers, reconciliation of payments, channel data, and customer data will be critical, as will creating the right offer for the right channel and customers. This will require identifying the most fitting channel and non-channel partners (such as issuers and community partners). Orchestrating pricing, availability, and content across channels will become integral to success, and commerce channel gateways and integrators will be another crucial element of this.