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HOW IS SOCIAL COMMERCE CHANGING THE GAME FOR SMALL AND EMERGING BUSINESSES

by Elena Ivanova

What if buying a product on a social media platform can be as easy as liking a friend’s photo...

Social media selling has boomed with the rise of popularity and user base of platforms such as Facebook, Instagram, Twitter, and Youtube. With around 4.5B people now using the internet worldwide, some 3.8B are active social media users – a number that grows by nearly 10% every year, according to Digital 2020, the Global Digital Overview of Hootsuite and We Are Social. 

Parallel to that rise, social media is also becoming an online marketplace of choice for many, and one out of three online shoppers worldwide has made a purchase on social media in the past year. The opportunity of social commerce for brands to attract and engage a growing user base is there, but in order to set themselves for success, businesses need to look into the way that digital payments complement the e-commerce experience of shoppers.

So, how can social media merchants easily convert lookers into buyers? Well, it might come down to the ability of sellers to provide their followers with a chance to checkout with a few clicks after seeing an item they like. 

It sounds logical, but it is not as easy as adding “See Offers” or “Shop Now” call-to-action buttons. With the rise of fintech digital payment solutions, shoppers have become accustomed to being provided with multiple payment options. As a result, their expectations when it comes to payments have also increased – in 2020 about half of the UK consumers report that they will abandon a purchase if their favorite payment method is not available. To help sellers respond to the needs and payment preferences of buyers, social media payment platforms unlock the power of e-commerce for both big brands and individual merchants.

Why is social commerce on the rise? 

Reaching consumers in the places that matter, creating a seamless shopping experience, and taking advantage of the e-commerce boom…These are deemed some of the most prominent reasons for brands to start focusing on social commerce. And data about customer preferences and behavior validates the business case of the social commerce model. The motivations behind using social media are no longer limited to socializing with family and friends or staying up to date with the news and current events. Instead, data from GlobalWebIndex shows that some 30% of social media users report that sharing their opinion is one of the main reasons for using these channels, while 29% use them mainly to research and find products to purchase. 

Supporting this data, Facebook has shared insights revealing how mobile and digital platforms are transforming the way in which people discover, assess, and purchase retail products. According to a survey which the company conducted across its users, social channels play a key role in the process of shoppers’ discovery of new brands. In particular, the Facebook family of apps, which consists of Facebook, Instagram, Facebook Messenger, and WhatsApp, is shown to be the most popular source of online discovery for Media & Entertainment shoppers who are 2.4x more likely to discover a product on a Facebook app than on a retailer website (37% vs 15%).

The pandemic further accelerated the growth of the social commerce industry and the global social commerce market is forecasted to reach $604.5B by the end of 2027. In addition, the powerful proposition of social commerce for brands has a lot to do with the fact that the digitally connected consumer shares a lot of smart data across multiple social networks. Data from Digital 2020 reveals that on average internet users around the globe between the ages of 16-24 have 8.6 social accounts. What this means is that brands are posed with a great opportunity to monetize their social media user bases and utilize the insights from the generated data. 

 

Explore Social Commerce Trends

How does social commerce differ from social media marketing and e-commerce?

Simply put, social commerce is the process of buying and selling products and services directly within popular social channels so that brands can offer a better in-platform e-commerce experience to their customers. Therefore, the main difference between social commerce and social media marketing is that the latter redirects buyers to an online store, whereas the former is all about providing them with the ability to make a payment within the channel that they are using at that particular moment.  

Social commerce technology allows merchants to start selling their products online in hours by leveraging the power of existing social media platforms, without the need to build a whole e-commerce website from scratch. Usually, the way that social commerce payment solutions work is by generating a payment link that sellers add to their items for sale in order to allow the transaction to be processed directly in the platform.

There is a big difference between social commerce which enables in-platform payments and other “Swipe up to purchase” or “Store link in bio” phrases which are associated with social media marketing for e-commerce websites. Unlike social commerce, e-commerce, for example, is characterized by sales of products that occur online but does not include any direct interaction between the seller and the buyer. On the other hand, social media marketing is all about attracting a customer base, bringing awareness about a product or service, and trying to engage with customers in order to influence them to purchase on an external website or platform. 

According to a visual user-generated content survey conducted by the UK tech company Bazaarvoice in 2021, some 40% of shoppers say that they won’t make a purchase unless there is user-generated content (UGC) on the brand. 

Social and visual content such as UGC is becoming an increasingly preferred way for brands to communicate with shoppers to influence their purchasing decisions. The same report by Bazaarvoice reveals that 62% of the shoppers are more likely to make a purchase if they can view photos and videos from previous buyers. The top three reasons why shoppers prefer seeing UGC while shopping is that it allows them to see the product in action, to see the quality of the product, and to find out if there is something that would not be otherwise obvious. No wonder that 75% of shoppers around the globe trust online products revered and 39% say that product reviews, in particular, are the features in their online shopping experience that they rely on most to make an informed purchase decision.  

On a different note, COVID-19 also significantly swayed customer preferences towards online shopping and all-digital experiences. According to research by WBR Insights, amid the pandemic last year, almost half (46%) of online retailers increased their social commerce spending and most of them also expect to continue increasing their investments in social networks in the future. Data from the report also reveals that 51% of the surveyed online retailers intend to engage with their customers by integrating more automation technologies such as chatbots and automated checkout. Additionally, as part of their social commerce strategies, 46% plan to shorten the path to purchase and use new analytical tools to get to know their customers better. 

But meeting rising customer demands and expectations indicates more challenges for retail brands and individual merchants. The same research by WBR Insights highlights that 49% of online retailers find it difficult to develop a logical and frictionless flow to transform the social interaction they generate into online transactions. On top of that, exactly half of the surveyed retailers believe that customers will turn to make purchases through social platforms in the next year.

Some customers might even suggest that online payments are frustrating as payment pages are not always mobile-optimized, checkout forms take a long time to fill and, of course, they are required to share sensitive personal information. 

The role of payment service providers: benefits for buyers and sellers

Instagram, Facebook, and Pinterest have for a long time been focused on developing their social commerce offering by introducing features such as buy buttons on their mobile apps. For instance, in May 2020, Facebook launched its Facebook Shops service to enable merchants to create a single online store for their customers which can be accessed from both Facebook and Instagram. One year earlier, Instagram introduced its checkout feature within the mobile app for its US-based users. The solution allows American customers to make in-app purchases faster and easier through the “Checkout on Instagram” button that requires them to only enter an email address and select a delivery and payment method. Pinterest was among the pioneers in the in-app social commerce market as it launched its shopping cart feature back in 2016 to allow users to buy products from many merchants with one cart without being redirected to outside websites.

Even though checkout is the most important step in the buyer journey, it is often the case that merchants do not focus enough attention on that part of the process. Payment Service Providers (PSPs) offer merchants the tools that will allow them to develop a frictionless checkout experience and convert their prospects into revenue.

On the side of the merchants, one of the biggest advantages of utilizing the power of social commerce is that it enables them to achieve better conversions and sell more, as well as to decrease the number of lost sales. By being able to accept payments online, social sellers would be able to expand their customer outreach by boosting brand and customer loyalty and attracting new clients. By using social commerce, individual sellers and starting retail brands would be able to build their online presence in a simple and cheap way compared to setting up an e-commerce website. Merchants would also be able to gain access to more customer data insights, especially when it falls down to their payment behavior.

Furthermore, by enabling their clients to purchase at the point of discovery, and decrease the steps they need to take to make a transaction, sellers can also increase their conversion rates. Referring back to the importance of product reviews and endorsements, merchants can take advantage of lower customer acquisition costs and leverage the power of social media instead of paying for ads to acquire traffic. Another benefit for merchants that are amplified by the network effect of social media platforms has to do with expanding the reach through shares, likes, and recommendations. And finally, some retailers are choosing social media as a way to gain the initial traction and customer base before setting up a physical presence.

By using social commerce channels, buyers, on the other hand, benefit from the ability to have conversations with brands before making the purchase. They are also offered a faster and more seamless way to complete their purchase and a more convenient way to make a payment. Additionally, they are able to take advantage of the discounts enabled by group buying and multiply the rewards of loyalty programs. Customizable personal homepages are also something that attracts customers as it allows them to see the products and brands which are relevant for them based on their historical data. Social commerce also enables buyers to follow, save and share interesting items and share advice both through recommendations and chat. The solutions of payment system providers also ensure that the information of buyers is stored in a safe and secure manner. Finally, customers are not required to fill in the lengthy form to complete their payments and can do the whole transaction in a familiar environment.

The European social commerce landscape

 

According to the Digital 2020 Report, in Europe alone, there are more than 470M active social media users. Looking into the statistics in further detail, the number of active social media users in the South Eastern European region compared to the total population, regardless of age, is 59% – the second-highest in whole Europe, after Northern Europe where 67% of the population use social media. More importantly, the number of social media users is growing at some 5.1% annually. 

According to the research firm Forrester around €1T of retail sales made in the EU will be digitally impacted. European consumers are reported to be particularly influenced by what they read and watch online when it comes to shopping and user-generated contact plays a key role in their customer journeys.

With the aim to find out what it is like to develop a payment enabling service for social commerce in the CEE region, The Recursive team reached out to Eugene Palcheuski, CEO and Founder of Tap2Pay, an online platform that enables seamless and smooth payments inside all digital channels. The startup is part of the third season of the Visa Innovation Program for SEE fintech innovators that is managed by the Bulgarian early-stage venture capital Eleven Ventures.

What is the biggest problem Tap2Pay is solving for its customers and what is the story behind the startup?

The problems that Tap2Pay solves are that SMEs and individual merchants do not have enough resources and skills to optimize a payment process. Additionally, they often struggle to increase conversion rate in sales, provide popular payment methods, and decrease cart abandonment rate.

In order to help these groups to enable payments without coding skills by simply using plugins and payment links, we founded Tap2Pay in 2019. The company is located in Poland but operates all over the world. Currently, we have grown to be a fintech development company that provides e-commerce services, allows merchants to activate payments while providing them with a platform for promotion.

 

How does the social commerce payments business model work and how do you go about monetizing your service at Tap2Pay?

Tap2Pay takes a commission fee per successful transaction from 1% to 10% depending on the location of a merchant’s company, risk level, and turnover. We have a premium plan that costs €99 per month with additional functionality and decreasing commission fees. For corporate customers, we offer a white-label yearly license.

 

At what stage of development are you in 2021 and what are your short and long-term plans?

Right now we have around 5000 merchants registered on the platform and more than 54000 buyers. Last year we reached $300K in revenue and a 67% yearly growth. In terms of funding, we have raised a total of $330K. In the future, we are aiming to attract big strategic players such as social networks, neo banks, and the banking sector. 

 

What is your competitive advantage and who are your main competitors?

First, we make it easy for merchants to start selling even if they don’t have a website. Tap2Pay works everywhere, on any device, and with any messenger (Telegram, Viber, Facebook Messenger). Our solution enables a seamless one-click buying process, secure payments in Messengers and social networks, and offers a checkout widget for a website without programming skills. In addition, Tap2Pay does not require to be installed and does not need supporting payment apps. At the moment our main competitors are Stripe and Paypal. 

 

Based on your experience and observations, what are the emerging trends in the social commerce sector? What are the biggest obstacles against the adoption of more innovation in the region?

Right now micro-businesses are becoming more popular. More and more people start to earn money on the internet. Social influencers, small entrepreneurs tend to open their markets, start selling something, but they don’t really have access and possibilities to enroll. Today’s payment gateways provide few possibilities and for regular users it’s quite complicated to set up payments, register their business, and products. And that is the point where we go ahead as we provide easy integration so anyone could start selling without any difficulties and a quick payment process.

 

Can you share what you think you will gain out of being in the Visa Innovation Program?

Our team aims to showcase the potential of Tap2Pay in front of the network of investors. Additionally, we hope to be able to share our technology and attract new people to contribute to the development of the fintech industry.

Social commerce payment providers: more about the technology and the business model

 

In order to be able to accept payments, social commerce sellers need to be allowed to enable sharing personal and bank information to conduct a deposit. Due to security reasons, some customers prefer to avoid sharing such information, but social commerce businesses and merchants have other available options to accept online payments securely and quickly. One of the most popular methods to do that is through payment links. Payment links allow sellers to share a special link that contains information about the payment and redirects the buyer to the payment page, via a messaging service. Since these links are customized, buyers do not need to share their bank and personal information in order to conclude the payment. 

Another popular method for accepting online payments is through WhatsApp because this channel not only gives merchants the ability to text with customers but also to provide them with photos, invoices, and other documents. The way in which WhatsApp payment acceptance works is the following: the seller sends a message to the buyer that contains concise information about the amount to be paid. The customer receives a payment link on the WhatsApp phone number that he/she has shared with the seller and then the process is the same as with regular payment links. 

Usually, the most common business model of digital payment providers for social commerce sellers is based on charging a small commission on the sales made. Such SaaS models mean that the merchants pay the provider a percentage of the purchase price of the items, and pay additional network fees for interchange and using the payment gateway. 

The future of the social commerce experience: challenges and opportunities for payment providers

Overall, the three trends that will determine the future of social commerce are the increasing preference towards mobile-first, the visually-driven shopping experience, and the rising importance of trust relationship between buyers and sellers. According to research by eMarketer, more than 2 billion people around the globe, which is equivalent to around 90% of smartphone users, will use a mobile messaging app by 2023. Therefore, this might impact the way that consumers engage with retailers in a mobile environment. 

It is expected that in the future, a couple of features will form the way social commerce develops. These will be mainly community shopping and group buying, as well as consumer-to-consumer, trusted platforms, recommendations, and user-curated shopping. Community shopping would allow customers to chat with other buyers or with the merchant inside the messaging social platform with the aim to receive advice and exchange opinions. Group buying, on the other hand, would help customers buy products for cheap when they make a purchase with more users, be it their friends or strangers.  

The way that shopping can be integrated further into social media is by allowing customers to shop on social networks via “buy now” tags from merchants or other customers. And when it comes to user-curated shopping, social commerce technology might start offering features that allow customers to create lists of items that are available for purchase only by their social media friends. 

The current trend of social media players and e-commerce retailers converting to social commerce sellers is expected to continue and social commerce platforms will most likely start acting as e-commerce intermediaries or super apps. Such super apps are able to integrate many services such as buying, selling, and chatting into a single interface, While intermediaries would serve as a bridge between customer and third-party social media platforms. 

As of now, social commerce platforms are not yet designed to offer an end-to-end shopping experience and, therefore, require the support of logistics, delivery, and payment providers, to reduce the frictions in the buyer’s journey. Here comes the opportunity for payment providers who can use their existing assets or offer entirely new features and tools to social commerce merchants. By equipping sellers with the needed payment solutions, online payment providers would also contribute to formalizing the social commerce industry.