E-commerce has already reached enormous sales volumes. E-commerce statistics show that the total amount of worldwide retail e-commerce sales will likely reach $3.5 trillion in 2019. This represents nearly 14% of all worldwide retail sales for this year.
E-Commerce Financial Services
Predictions are, that by 2040, nearly all retail purchases (95%) will be made online. If these predictions come true, the global retail e-commerce level will reach $24 trillion. A big part of the benefits of e-commerce for retailers will come from the online sales and purchases of e-commerce financial services. The fintech applications for e-commerce will allow retailers to capture a big share of fintech products sales.
Impact of E-Commerce on Financial Services
It has been transformational in how e-commerce impacts banking. Trips to a physical bank branch are no longer necessary by utilizing the vast array of online services offered by major banks. This includes the basics of direct deposits of paychecks, online bill paying, and many other convenient banking services.
Financial service companies that compete with banks can offer many things, besides basic banking, to their customers online.
Increased Fintech Product Offerings
One powerful application of e-commerce is to provide financial services that extend the things offered by banks. Fintech companies may offer regular banking services plus other services, such as trading in foreign currency exchange (Forex), investments, and insurance. These offers are possible to make in ways that are cost-effective and highly-competitive.
These are just the beginnings of a major transformation caused by the impact of e-commerce on banking and finance.
Here are some other ways that fintech and e-commerce impact each other:
1. Digital Currency and Cryptocurrency
Physical currency is being retired in many nations to be replaced by digital versions of currency. This may shift to cryptocurrency eventually for its added security protections and usefulness.
2. Services for the Unbanked
In developing countries, billions of people do not have a bank account. Moreover, a significant portion of people in developed countries, such as 25% in the U.S. as reported by CNBC, are unbanked or underbanked as well. By creating e-commerce/fintech hybrid services, online retailers may sell products and offer financial services to their customers, thereby substituting for a bank.
3. Permanent Digital Archive Records
Blockchain technology, which derives from cryptocurrency applications, is now used to make permanent encrypted records of financial transactions that are public. There will be no need for individuals to keep any records/receipts when they can access these permanent records online. The use of blockchain technology can reduce fraud.
4. Artificial Intelligence and Big Data Mining
Artificial intelligence (AI) is already being applied to analyze Big Data and look for patterns. Online retailers can cross-reference purchasing activity with other Big Data metrics to predict behaviors. Behavioral analysis of customer patterns improves the impact of marketing. This allows an online retailer to present products and/or service offerings at the most appropriate moment when they have the greatest relevance for a person. Moreover, fraud can also be reduced by AI mining of Big Data to gain insights about patterns of criminal behavior to help prevent it.
5. Peer-to-Peer Transactions
Peer-to-peer systems have already evolved that disintermediate the traditional fintech structures. Examples are peer-to-peer lending, crowdfunding, and for-sale-by-owner (FSBO) real estate transactions. When a direct, person-to-person, connection is easily made there is no need for intermediaries.
Most online purchasers regularly use a smartphone for e-commerce. Small business owners can use a smartphone for bank card purchases with the help of a simple attachment that is used to read a bank card. The system sends the transaction over the mobile network for authorization. This service is very convenient, the transaction fees are highly-competitive, and there are no monthly fees. It is easy to sign up for this type of service for those with a merchant account on PayPal and other financial systems.
Using AI chatbots for customer service and sophisticated data analytics created by applying AI algorithms to Big Data, it is possible to personalize every customer’s experience. Through machine learning, these AI-based systems learn more, over time, about a person’s needs. This makes it easier to be able to better address these needs in the future and anticipate a person’s concerns.
The financial service sector and fintech products already are merging with e-commerce. The traditional physical boundaries of brick and mortar retail stores have disappeared online. Online, it is just as easy to buy insurance from a major retail store as it is from an insurance agency. Using AI for customer support replaces the need for a large human staff of specialists
The improvement in digital processing of complex transactions using blockchain technology means that many more items will be sold by online retailers, including things like homes and financial products.
The megatrends are for online retailers to sell comprehensive solutions and offer relevant bundles of products and services at highly-competitive discounted prices. Retailers that want to capture market share of the upcoming 95% online retail global economy should invest heavily in AI-driven platforms and blockchain technology to reap the benefits.