Payments Volume: a discussion of market growth opportunities

NOTE: The blog migration is, in theory, nearing completion. If you run into anything bizarre or a bit wonky please contact me via the :contact: link above

A few items of note occurred today…and yes, they are related:

Unrelated, eh? It was, in fact, my time spent at the POS at the store that lead to me analyzing the data in a somewhat different light than I had initially.

As is my wont, I think about payment workflows and experience whenever spending money. Dissecting the workflow (checkout, device at counter, etc), analyzing the tender options presented, the knowledge of the cashier, etc. are now simply ingrained into my existence. During this particular checkout (at a POS) I was struck by the way in which tender options were presented.

That, in turn, led me to consider payment volume information.

If you have visited the link above, you will have been prompted to enter your information to obtain the report…it is free, and compelling enough that I encourage you to download. In respect of their work, I will refrain from quoting the entirety of the piece and will not include Payment System detailed breakouts. However, there are a few highlights necessary for us to continue. The Glenbrook report categories by “domain” (POS, eCommerce, Bill Pay, etc) and then by “system” (Cash, ACH, Checks, Credit Cards, Debit Cards, Wires) and provide both transaction volume and amounts (in Billions for both)…I will follow the same basic nomenclature:

  • POS: 106.9, $4,353.5
  • eCommerce: 1.3, $255.7
  • Total: 152.5, $1,343,436.9

This information, when combined with a statement Karen Webster made in a Catalyst Code entry entitled Why Make Mobile Payments Easy when you can Make it Hard (and expensive) prompted some additional analysis.

Today, roughly 10 years after the birth of eCommerce, online shopping is projected to account for roughly 7% of retail sales in 2009. It’s growing, but the majority of sales still happen in stores.

Firstly, the Glenbrook numbers indicate that by volume, eCommerce transactions represent 8.5% of transactions; by amount eCommerce represents 1.9% of dollars in 2008. So Karen’s projections, as well as my understanding, have been vetted…

So, why is there a focus on eCommerce software and technology?

Quite simply, it represents a growth opportunity. In a detailed breakdown it can be seen that ACH represents half of the volume of credit in the eCommerce market…but only 19.1% of the transactional amount. As such, there is an opportunity for the Software Company to include ACH workflows in a greater way (i.e. out of the box) for their eCommerce customers. This, as an example, is a win for those in the value chain…the merchant sees decreased cart abandonment, the software company can market the inclusion as competitive differentiation, the channel is selling a more holistic solution, and the service provider receives incremental revenue.

Growth opportunity is represented by the inclusion of a 2nd service.

In addition, Glenbrook rightly notes (in the blog post linked above) the HUGE prevalence of paper checks in the B2B market. The electronification of B2B interaction represents another growth opportunity. Interestingly, in the bill payment scenario ACH transactions (in count) are 4.4 times greater than card and card is only 9% of the amount.

The B2B space is additionally intriguing in that the amounts of ACH vs. paper check are similar…but the count of check transactions is 3 times that of ACH. I will have to dig into the Federal Reserve Sample Check Survey in greater detail, but based on interaction with those in that space it seems clear that this is due to the prevalence of SMB payment via paper and enterprise payment via ACH.

In sum, growth opportunity in the market is represented by either displacing a current modality (i.e. credit or ACH vs paper) or by adding a tender to an extant solution to capture the growth curve of the unique domain.

What’s your perspective? Agree? Disagree? Anything to add? Critiques? The comment form is below…

June 23, 2009

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