It goes without saying that 2020 was an unpredictable year as nations, businesses, and individuals had to re-learn the way we live, work, play and interact. Our work and personal lives merged into our homes and social distancing made everything virtual. One profound change has been the dramatic acceleration from physical to digital across all facets of our lives from staying connected, purchasing, paying and more.
Consumers are embracing digital for all their daily necessities from groceries, meals, to entertainment, with many indicating they will continue online shopping habits even after the pandemic. This trend is further supported by the "Silver Tech" generation who have embraced the benefits of digital.
According to IBM’s US Retail Index, the pandemic has accelerated the move from storefronts to e-commerce by five years, compelling small businesses to adopt and accelerate their digital strategies to survive. The ripple effect of e-commerce has fuelled fintech adoption rates, with markets like Hong Kong, Singapore and Australia witnessing a surge to 60% over the past 12 months, up from 16% and 31% in 2015 and 2017 respectively.
With the rapid growth in both e-commerce and fintech adoption, what should businesses be thinking about to succeed in 2021?
Consumer spending is still high despite negative economic outlook
The World Bank estimates that there will be a global 5.2% GDP contraction due to the pandemic. In Hong Kong, the unemployment rate is at a near 16-year high of 6.3% (according to the latest figure) and the city’s consumers have been feeling the squeeze, as household incomes dropped by 12.3% during the pandemic. In response, the government announced measures including the Employment Support Scheme and the Distance Business (D-Biz) Programme to help businesses and the workforce tide over the ramifications from the pandemic and more is expected to come.
This challenging outlook explains in part why consumer spending was tracking low earlier last year as households buckled down on purchasing. Yet, surprisingly, consumer spending on e-commerce platforms are showing the contrary. Alibaba’s Singles Day (11.11) brought in more than US$74 billion, almost double its previous record, signifying the world’s second-largest economy is bouncing back to consumption levels before the pandemic.
Livestream and modern technology to boost sales and offer personalised customer experiences
The new record set by Singles Day is largely attributed to livestreaming, raking in 583,000 orders per second at its peak during the 24-hour event, which became a popular way for brands to sell products virtually. Brands and retailers who applied livestreaming or modern technologies such as AI to streamline their operations, appear to have a competitive edge, resonating strongly with their customers.
China’s livestreaming e-commerce sector generated US$61 billion in 2019, was expected to double to US$136 billion in 2020, and continue on an upward trajectory. These astonishing numbers signify the big business opportunities in this new sector, which already have more than 900 livestreaming sites.
Social distancing is expected to continue in the near future, which means brands are mandated to limit the number of employees and customers in a store. Introducing technology tools like livestreaming will help brands exponentially increase engagement with customers virtually.
Digital payments will become mainstream
The hesitancy to handle cash will force the adoption of contactless and digital payments as the preferred transaction method both offline and online. In Q3 2020, PayPal saw 15.2 million new active accounts – our second highest quarter in organic user growth, coupled with 1.5 million new merchants come onboard – twice our usual rate in a quarter.
Salesforce’s State of the Connected Customer research report also found that consumers now spend 60% of their time interacting with companies online compared to 42% before the pandemic. By incorporating the online-to-offline (O2O) model, which refers to services such as online information, discounts or services, member rebates, in-store pickup of items purchased online, or the allowing of online purchases to be returned to physical stores, to their business strategies, companies can improve customer experience, service and loyalty. On the O2O model, we also expect consumers to opt for payment methods that act as a bridge between online and offline, such as digital wallets offering QR codes.
In line with the upward trend of e-commerce, businesses will also need to find ways to optimise and protect margins. On average, 88% of shopping carts globally are abandoned, with one of the most common reasons attributed to complex checkout processes.
For businesses looking to keep and grow their customer base in this competitive environment, a simpler, faster and more intuitive checkout process with seamless and safe payment options is critical.
Building trust will be key to sustainable adoption of digital
While it is great to have more and more businesses getting online to access a global consumer base, it is disheartening to see many companies and even consumers falling prey to cyber scams. This accelerated digital and e-commerce growth, unfortunately, has drawn unwanted attention from bad actors exploiting vulnerabilities for nefarious purposes. Email scams related to COVID-19 increased by 667% in March alone and will probably continue as scammers push our psychological buttons to acquire our personal and financial information.
Increasing concerns about online security is propelling the adoption of digital wallets, which use data encryption to keep payments safe, prevent fraud and provide buyer and seller protection. Our recent Borderless Commerce Report found that more than 30% of shoppers in Singapore use PayPal’s services because our Buyer Protection policy makes them feel safe.
Implications for the road ahead
As we look ahead, it is imperative businesses digitalise and innovate, with a growth strategy that places their customers at the centre.
The rise of e-commerce and digital payments coupled with changes in consumer purchasing behaviours need to be understood by businesses if they want to succeed in the new normal. Above all, as our dependence on technology and e-commerce increases, so should our vigilance as we chart new paths to economic recovery.
This article is contributed by Cameron McLean, senior vice president and head of international markets at PayPal.