It is fitting that Mary Meeker begins her 2018 tech report discussing the plateau in smartphone unit shipment growth, as this lays a foundation for understanding the digital payments transition from growth in users, to growth in usage.
According to Meeker, smartphone shipments have levelled off at just below 1.5 billion units, the culmination of a slowing growth trend as the market reaches maturity. Even China, the bastion for mobile growth, has seen mobile internet user growth slow to 8% from 12% last year, and whilst still strong, Chinese growth in mobile payment users has begun to slow as it soars above 500 million. Simultaneously as the percentage of the world’s population with internet access reaches half, its rate of growth is also slowing, growing 7% last year compared with 12% in 2016 - a figure Meeker states is probably too high for the future.
This does not mean the glory days of digital payment growth is over, in fact, the very opposite is true. Meeker reports the mobile shopping category as having the highest annual growth in number of app sessions, growing 54% last year, and China mobile payment volume increased 209% last year up from 116% the year before. User number growth is slowing, but usage is taking off.
Meeker details daily digital media consumption rising 4% last year to 5.9 hours per U.S. adult, with mobile cannibalising desktops and laptops. Messenger app usage is also exploding in terms of time spent on the site and membership. The time people are spending in the digital world is also translating into commercial activity. E-commerce as a percentage of total U.S. retail sales is currently at 13%, increasing 16% last year. Meanwhile physical retail growth is continuing a long-term growth deceleration, now below 3%. Some 60% of ‘everyday’ transactions are now made digitally, with ‘buy buttons’ leading digital payment methods.
Why is this shift occurring? Why are users now increasing their digital consumption for more and more of their activities? Perhaps the most stunning graph in the 294-slide presentation displays the ramping of worldwide data creation - from 2 Zettabytes in 2010, to 12 ZB in 2015, and a predicted 47 ZB in 2020. This data creation is important because Meeker states there is a fundamental shift in the drivers of commerce, evolving from ‘Utility’ to ‘Data’. Utility was pioneered in the late 90s with the massive product selections and ease of access of online market places. The natural next stage is employing the data made possible by these online markets places to facilitate curated product discovery and 24/7 recommendations. This is the growth of personalised shopping. The product of a data-personalisation positive feedback cycle, where good products lead to more usage, creating more data, leading to better customer insight, leading to better, more personalised products, leading back to more usage.
The transition to this new growth driver for digital channels will cause some profound changes in payment facilitation. Meeker documents the rise in ‘build your own’ online stores, as companies like Stripe offer APIs which can be easily integrated into a business’s online storefront, offering many new and smaller retailers a simple, direct to consumer payment channel with the associated data access. Meeker finds that data’s ability to facilitate improvements in products is also changing the way people pay for things with the rise of subscription-based services including Netflix and Spotify.
Meeker also explores tech companies drive to increase their volume of data, pushing to digitise offline experiences as well. This enlarged data appetite will incentivise tech companies to design payment systems that encourage users to pay in a way that provides these companies greater, more detailed access to customer information. We can expect this trend of data gathering to further leech directly into financial services, facilitating the growth in personalisation of financial service offerings.
Related to this trend of personalisation, Meeker points to the consumerisation of new industries and enterprise software, a process that will likely open the door to many new innovative payment and financial products. Meeker examines the increase in digital healthcare interactions as an example of consumerisation. For payments, a consumerisation path will likely open digital payments channels to new areas of consumers lives, as well as the development of payment products specifically designed for newly ripe areas, including healthcare transactions. Additionally, the creation of consumer-like apps for enterprise computing is changing the way businesses undertake activities, an area that payments will undoubtedly continue development into, becoming more seamlessly integrated into business functions.
The insights in Internet Trends 2018 suggest there is a new horizon in the payments industry. The increasing importance of usage will mean that the payment channels of the future will be more integrated, digitised, and interlinked, as they both fuel and succumb to the gravity of the data-personalisation cycle.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of AusPayNet or its members.