Data: Online Payments Spike in the Covid Era

Data Scout is Localogy’s series that curates and draws meaning from third-party data. Running semi-weekly, it adds an analytical layer to the industry data that we encounter in daily knowledge building. For Localogy original data, see the separate Modern Commerce Monitor™️ series.

Pandemic-driven economic fallout has a polarizing effect on the SMB SaaS world. Anything that’s high-touch is clearly suffering, including home services and local bars & restaurants. Meanwhile, quarantine-friendly fare like digital communications, payments and e-commerce are booming.

For example, after teetering around 10 percent of U.S. consumer spending for the past decade, e-commerce has shot up to almost 15 percent in just a few months. This has caused a land grab for e-commerce enablement, including lots of product road-map pivoting and new integrations.

A related area is online and mobile payments. It logically grows in step with eCommerce’s inflection. And as that transaction volume increases, tech providers and payment gateways correspondingly benefit from transaction fees as well as new merchants gearing up for eCommerce.

There’s notably a difference between these fees and what credit cards charge for in-person payments. Online payment gateways charge more due to fraud-prevention costs they incur. But merchants may be willing to pay more on a transaction basis given the cost efficiencies they gain in eCommerce.

Proof Points

Validating online payment growth, PayPal reports a 30 percent jump in newly active customers who use the service at least four times in ten days. As a result, PayPal’s stock price has grown 80 percent year-to-date. While we’re at it, Shopify shares have grown 170 percent and Square has grown 113 percent.

As for merchant volume, PayPal reports adding 1.7 million merchants in Q2. This is about 3x its normal quarter-over-quarter merchant growth. Shopify likewise reported that new stores created on its platform grew 71 percent quarter-over-quarter. It continues to double down on eCommerce.

Global Payments Inc. has likewise reported that online payments have grown to 25 percent of the transactions it processes. And Visa has reported that online spending — excluding travel purchases — has increased 25 percent year-over-year, which is twice the growth rate it experienced pre-pandemic.

Visa also reports that in-store spending has declined by 50 since early April. This tells us that eCommerce growth hasn’t counterbalanced brick & mortar losses, resulting in a net decline in consumer spending (not a surprise). But that should return to, or exceed, pre-covid levels in time.

Crash Course

Back to the shift in merchants gearing up for eCommerce for the first time, the question is if this sticks as a new habit. Even if they go back to brick & mortar commerce, the last few months have given them a crash course in selling online, which they can incorporate into their operational mix permanently.

That acclimation principle works on the consumer end too. Comfort with eCommerce has gradually risen over the past decade. But the past few months have kicked it into hyperdrive as consumers are forced to buy things differently, including local-fulfillment like curbside pickup and order-ahead QSR.

Altogether, the inflections seen in e-commerce, payments and other parts of the value chain could be semi-permanent. If that’s the case, this period of history could be written (among other things of course) as the time when SMB digital transformation evolved an entire decade in a few months.

This will be the main theme of Localogy’s upcoming 20/20 conference, as the concept of accelerated transformation will be seen across the SMB SaaS landscape. More to come soon on content and speaker lineups.

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