Electronic payments, not hard cash, are becoming the currency of commerce, whether the purchase is from the corner store or a website located anywhere across the globe.
The main driver for this revolution, according to Mastercard, is technology, which is fuelling the growth of non-face-to-face sales. Customers buy from the comfort of their home or office via telephone, or increasingly, with their computers without ever handling notes and coins to make a payment.
The Internet is an ever-expanding highway of e-commerce, with the number and the value of transactions rising year-on-year in South Africa and the rest of the world.
Recent local research by World Wide Worx indicated that R341 million was spent online in South African during 2003. The number of South African retail websites has exploded: from 215 at the end of 2001 to at least 719 at the end of 2003. In the US in 2003, non-face-to-face purchases made up 24% of the total transaction volume, according to the Tower Group. By 2008 it expects that figure to rise to 44%.
This radical change in the way we shop is taking place despite the majority of purchasing power being in the hands of 'digital immigrants', people who didn't grow up with technology. A number of South Africans have migrated to the brave new world of technology but still remember how retail used to be back in the 'old days', and continue to have some inhibitions about buying online, Mastercard asserts.
On the other hand, there is the first generation of 'digital natives'. The 'iPod' generation who have no qualms about the virtual retail world. Their spending power is limited at present, but in the next 10 years that will all change as these digital natives begin to earn salaries of their own, which will, in all likelihood, be considerably higher than the present earner.
There are limitations, however, to the potential for virtual retailing, says Mastercard in its report. The digital natives are part of a generation that wants instant gratification. With the many online purchases, there is a delay in delivery. You can buy your groceries, music or books online, but you still have to wait for the truck to arrive. The companies that can figure out how to speed up the delivery process will therefore gain a significant competitive advantage.
The availability of a safe, secure electronic payment system is transforming bricks-and-mortar retailers as well as their virtual cousins. Stored value cards are already transforming the patterns of retail sales.
These stored value cards have the potential to open up new channels and provide secure means of payments for parts of society which have, up until now been practically excluded from the electronic payments system - the 'unbanked'. By using pre-paid cards, it is possible for people on social benefits to buy goods and services online from the "virtual main street" with the same ease and convenience as those with credit and debit cards.
Today's consumer wants to spend more time shopping and less time paying. Fast food restaurants are looking to contactless payment solutions, such as MasterCard's PayPass, to let their customers make purchases in significantly less time than it takes to pull out cash and count change.
Another powerful differentiator that will change the way we shop is increasing customisation, says Mastercard. An example of this would be cellphone operators entering new and different markets in areas such as Africa. Their prices and margins have to be drastically reduced in order to make calls affordable in these emerging markets. That means in order to maintain profitability volumes have to increase. Cash is not an effective payment method for this type of service, and without flexible payment options such as pre-paid cards, this business model is unworkable.
South African consumers are also becoming more selective. They want and expect a level of value-added service that is only possible with digital technology. Value added electronic payment systems (pre-paid, debit and credit cards) can be customised to suit the needs of customers in all markets. In the future digital shopping will no longer be the sole preserve of the Internet. The hybrid 'clicks-and-mortar' retail model will unlock the huge potential power of both the affluent and unbanked South Africa consumers.
The generation of South African 'digital natives' who will inherit the retail world will soon have the disposable wealth and already possess the technical savvy to realise the power of e-commerce. As this generation moves into the paid workforce and starts spending, merchants will be expected to develop ways to speed up the delivery and ensure that consumers get secure, instant gratification and retailers get secure and prompt payment. When that happens we will begin to see an electronic retail superhighway that is fundamentally different to what we recognise in South Africa today, Mastercard concludes.
