Rise in Ecommerce Creates Payments Complexities and Costs Challenges for Merchants
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There is Little Cost Relief for Online Merchants: Unlike In-Store Channels, the Low-Cost Cash Alternative Doesn’t Exist Online.
CMSPI estimates a $2.4 billion increase to interchange and network fees paid by U.S. merchants due to increased ecommerce spending between 2019 and 2023. 1 How has ecommerce grown over the last five years, and what does the State of Industry Report present as challenges for merchants who sell online?
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1 CMSPI estimates and analysis
Rapid ecommerce growth was observed between 2019 and 2022; the growth leveled out in 2022 in some countries but has continued in most for an average 41% estimated growth in ecommerce in the countries observed. 2
ECOMMERCE AS A PERCENTAGE OF ALL COMMERCE
20.0%
16.0%
12.0%
8.0%
4.0%
0.0%
Australia
Brazil
Canada
China
France
Germany
India
Italy
Japan
Mexico
Netherlands
Spain South Korea
UK
U.S.
2019
2020
2021
2022
2 CMSPI analysis of the Worldpay Global Payments Report Source: Worldpay Global Payments Report
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Around 54% of global ecommerce transaction value in 2022 was made via mobile devices. 3 This observation underscores the dynamic nature of mobile commerce and its diverse impact across global economic landscapes.
ECOMMERCE AND MOBILE COMMERCE GROWTH
20.0%
100.0%
16.0%
80.0%
12.0%
60.0%
8.0%
40.0%
4.0%
20.0%
0.0%
0.0%
Mobile as a % of All Ecommerce
Ecommerce as a % of Transaction Value
3 Worldpay Report 2023 Source: Worldpay Global Payments Report
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In the U.S., CMSPI has identified the average interchange fee cost difference between Card-Present and Card-Not-Present transactions was 21bps* for credit cards and 58bps for debit cards in 2023.
CP AND CNP AVERAGE INTERCHANGE FEES
2.5%
CARD-PRESENT (CP) This generally refers to a transaction where the customer has dipped, swiped, or tapped a card at a physical point-of-sale machine. CARD-NOT-PRESENT (CNP) This generally refers to transactions made via a website or mobile application. There are some instances of mobile phones being tapped at the point-of-sale where the card networks interpret the transaction as card-not-present.
2.0%
Worldpay numbers suggest that ecommerce as a share of total commerce in the U.S. increased from 9% in 2019 to 15.4% in 2023 . Like-for-like, this increased interchange fees by an estimated $2.4 billion for U.S. merchants in 2023. 4,5
1.5%
1.0%
0.5%
0.0%
U.S.
Canada
Australia
Basis points (bps): one hundredth of one percent
Credit CP Average
Credit CNP Average
Source: CMSPI estimates and analysis 4 Kansas City Fed, CMSPI estimates
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5 This is based on 2022 fee differentials between CP and CNP transactions and does not include the effect of, for example, incremental digital fee network and interchange fee increases during the time period between 2019 and 2022,
The growth of tokenization technology use cases for payment transactions is yet another area that complicates customer experience, cost, and fraud dynamics for payments.
CMSPI TOWNHALL SURVEY
Merchants were asked: “Which of these solutions do you use today?”
A survey at CMSPI’s June Townhall on fraud and approval rates found 48.8% of merchants use network tokens as one of their fraud prevention solutions. 6
Real Time Account Updater
31.70%
Batch Account Updater
34.10%
Trusted MID
17.10%
3D Secure
46.30%
Network Tokens
48.80%
Authorization Optimizer
22.00%
Transaction Retries
61.00%
Tokenization is the process of replacing sensitive credentials with a different, non-sensitive value.
6 N = 41
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Tokenization Considerations
CNP transaction environments have created various challenges for payments. The State of the Industry Report unpacks key considerations for merchants and industry stakeholders related to payment network adoption.
Card Network Access
Digital Wallet Network Access
Fees and Rules
Customer Response Management
Authorization and Risk Decisioning
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About the State of Industry Report Developed alongside 11 of the world’s leading payments experts, CMSPI’s flagship report aims to empower merchants and advocates with the information they need to execute payments for their organizations in the market today. Want to understand how tokenization works, which payment methods to offer in different geographies, or why payments regulation differs by market? CMSPI’s Insights team has created the SOIR to be the first of its kind, developed with merchant input, to fuel merchant decision-making.
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What you’ll learn in Section 3 of the SOIR
Four years on from the start of the COVID-19 pandemic, how has ecommerce evolved?
Where does tokenization come in?
What is the difference between a Card Present and Card Not Present transaction, and why does the classification matter?
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This document is for informational purposes only and does not guarantee the functionality or features of any CMSPI product or service. CMSPI does not represent nor warrant that this document is complete or error free. Copyright © 2024 CMSPI All rights reserved.
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