Evolution of e-commerce and rise of e-wallets

IBF Entrepreneur Online –

As the Internet is tightly integrating the global village concept, the volume of online cross-border transactions are increasing at a rapid rate. Recent research conducted by the online payment processing industry suggest that the transaction volumes will grow even at a faster pace over the next couple years, where e-wallet providers will be dominating the online payment processing industry.

The North American and European markets steadily dominated the e-commerce industry as over 70 percent of the transactions occurred in that region in 2012. In contrast, only 27 percent of the transactions happened in the combined Asia-Pacific region. The African and Middle-Eastern countries only represented 1 percent of the global e-commerce market.

In the growth markets in Asia-Pacific region, a new trend is developing where customers are progressively shifting towards alternative payment methods that do not directly use traditional payment systems like credit and debit cards. While analysts are expecting the card based payments to keep dominating the more matured markets in the developed economies, the alternative payment methods are likely to grow faster in the emerging markets.
One of the key reasons why consumers from the emerging markets prefers alternative payment processors that offers e-wallet service is the lack of traditional banking reach. Almost every adult person the developed economies such as the Untied Statesm, United Kingdom, and greater Europe has access to banks, but only a fraction of the urban population in the developing countries has access to such facilities. Also, various government regulations and lack of institutionalized credit appraisal systems is slowing down the growth of credit and debit cards in those places.

E-wallet providers like EgoPay, AliPay, PayPal, and other providers makes it easy for users to deposit money into their e-wallet from various sources. For example, a freelance graphic designer can bill their clients through it and spend the earnings directly on e-commerce websites. If they were accepting credit or debit cards via a traditional merchant, the transaction costs and delayed withdrawal options to a bank account would not be so attractive compared to using an e-wallet provider like PayPal or EgoPay. With online e-wallet providers, it literally takes a few clicks and a second to move money around, across the globe!

In the beginning, consumers in the developing countries like India and China were suspicious of the concept of e-commerce. e-Commerce retailers often had to offer “cash on delivery” service, where customers paid cash to the delivery man in exchange for the product. However, the cash on delivery method of payment is also likely decline in the coming years, says the WorldPay report.

The shift is clearly towards the using third party payment processors that offers e-wallets for online transactions for e-commerce. According to a report from popular payment processor, WorldPay, the total transaction volume of e-wallet payments represented represented around 17 percent of the payment processing market in 2012. By 2017, the e-wallet transaction volume is expected to grow to $1,656 billion against the $295 billion in 2012, representing a market share of 41 percent in the payment processing industry.

The massive growth potential in the e-wallet segment of the online payment processing industry will certainly attract more individual e-wallet providers in the coming years. While this is a great opportunity for consumers to pick and choose the best service, it may also create an issue with making payments from one e-wallet to another. This is because most e-wallet providers do not allow the stored value to be sent to another e-wallet provider. For example, a PayPal user cannot send a payment to his friend who is using Skrill directly, he has to withdraw it to a bank from PayPal, then deposit it back to Skrill, then make the transaction. This is not only time consuming, it actually costs way too much.

Regardless of what WorldPay forecasts, users will keep relying on credit and debit cards for these kind of transactions between two e-wallet providers because all of them, it seems, accepts card deposits. However, companies like EgoPay has been providing an invaluable exchange or interchangeability service to convert the value from one e-wallet provider into another, for a low fee.

As the global e-Commerce industry keep growing and more online shoppers from the emerging markets join the trend to use e-wallets, the industry is set to see some exponential progress in the coming years.