The rise of social commerce is transforming online shopping, with networking services like Instagram, TikTok and Facebook offering users a quick, personalized and streamlined e-commerce solution. Indeed, projections see the global social commerce market reaching $3.37 trillion by 2028, up from $585 billion in 2021.
Gone are the days when social media was simply a retail tool for product promotion. Now, brands are also using it to sell their goods and services – social commerce.
However, this way of doing business isn’t without problems, including digital fraud and consumer worries around data privacy. To combat these issues, open banking comes into play, improving the security of social commerce and enhancing the overall customer experience (CX).
What is social commerce?
A marketing and sales strategy that e-commerce and online brands are increasingly capitalizing on, social commerce involves buying and selling goods and services directly within a social media channel. Be it Snapchat, Pinterest or YouTube, the entire experience – from research to checkout – takes place on the social platform.
Social commerce is an interactive activity that removes friction from the customer journey, speeds up the transaction process and offers an easy way to collect feedback. And, given the wealth of data social media makes available, companies can target advertising towards their prime audience.
Moreover, social commerce shifts power from retailers to people. Consumers buy products based on recommendations and inspiration from individuals they trust, be it friends, family or authentic influencers.
The rise of social commerce
By weaving online shopping into the fabric of everyday life and cultivating a sense of community and connection, social commerce is revolutionizing the retail industry and growing rapidly. Research by Linnworks supports that, revealing that 71% of people would rather complete a purchase on a social platform than be redirected to a retail site.
As the primary social media users, younger consumers like millennials and digital native Gen Zers are leading the charge. Accenture predicts these groups will account for 62% of social commerce expenditure by 2025; they also expect the worldwide market to grow three times as fast as traditional e-commerce, reaching $1.2 trillion by the same year.
And, if we look at the market in China – more advanced than Western countries in terms of social commerce – growth has already skyrocketed. For example, as of December 2020, 71% of Chinese consumers said they were likely to shop via social media.
The risks of social commerce
Despite its popularity, social commerce also comes with risks. A common worry among customers is the protection of their personal information. According to a survey by Malwarebytes, up to 95% of individuals don’t trust social media, including its capacity to secure their data.
There are also concerns about account takeover fraud (ATO), whereby cybercriminals gain access to a legitimate online account and use it to withdraw money, make purchases, or extract sensitive data they can then sell or use to access other accounts.
Additionally, there’s uncertainty around the authenticity of items sold on social channels. Indeed, the Anti-Counterfeiting Group (ACG) estimated that 31% of shoppers unintentionally bought fake products online in 2019, with 23% of those goods purchased via social media.
Fraud also impacts businesses, with merchants funneling between 3% and 5% of their revenue towards combating it.
Clearly, for social commerce to continue and maintain its success, efficient solutions need to be found and implemented in tackling these issues.
Boosting payment security via open banking
Open banking offers a robust, safe and convenient way to tackle risks associated with social commerce. For example, The API Specifications support payment initiation services (PIS), allowing social commerce retailers to integrate open banking payments into the customer journey with relative ease.
Meanwhile, shoppers pay companies directly from their accounts, using their bank’s stringent security and verification procedures. That way, consumers don’t share sensitive information on social media; similarly, banks don’t store data with the social site or the merchant.
Not only that, but the rigorous verification process also defends businesses against card-not-present fraud, safeguarding their reputation while reducing investment in preventative solutions.
Open banking: Additional advantages
Alongside bolstering payment security, open banking can also improve CX by offering a more personalized and data-driven experience that understands individual needs and keeps users engaged at every touchpoint. In turn, that fosters customer loyalty.
By using open banking to access a person’s account information through their bank’s APIs, social commerce enterprises can offer custom payment methods. For example, people can pay immediately via open banking’s Instant Payments infrastructure, increasing convenience while reducing risk. Also, retailers can embed bank account data and display it at checkout, showing shoppers their balance and transaction history.
Furthermore, chargebacks are eliminated (open banking doesn’t support them), paving the way for direct relationships between payment providers and merchants, plus more efficient dispute resolution for consumers.
Over 50 countries are well on the path to open banking. In terms of social commerce, behemoth Alibaba and payment app Alipay leverage open banking in China. In the West, open banking is an increasingly high priority for banks and financial services organizations – now’s the time for social commerce businesses to get on board too.
Social commerce: Harnessing the power of open banking
In 2022, the global number of social media users is set to reach 3.96 billion, with people spending an average of 144 minutes per day using networking services. As part of that, social commerce is growing rapidly, with the likes of Instagram Shops, Facebook Shops, and TikTok’s partnership with Shopify emerging in recent years.
Social commerce is a revenue-generating opportunity for brands to explore, but it doesn’t come risk-free, with digital fraud a pressing issue. Facing this challenge head-on is open banking, offering a seamless and secure way to process payments while facilitating a more tailored, interactive and streamlined experience for customers.