Big changes on the way to e-commerce
Over the last four years, the e-commerce industry has experienced yet another rapid growth. Global e-retail sales are reaching 3.5 trillion U.S. dollars in 2019. Such growth rate shouldn’t be surprising, as e-stores are set to satisfy almost every need of a modern consumer.
Despite its immense popularity, e-commerce still has drawbacks that need attention to sustain the ever-growing demand. Most of those challenges are related to the centric nature of e-commerce platforms and their dependence on financial institutions. However, technology has the answer. Industry giants and globally recognized blockchain consultants are slowly giving us hints that blockchain revolution is inevitable.
Blockchain and e-commerce: a match made in heaven
Let’s see which challenges e-commerce presents and how blockchain technology can help to solve them.
1. Fraud protection
As of 2018, there were around 1.4 million credit card fraud reports, with $1.48 billion lost worldwide. While there are many ways fraudsters can make money online, there is one that stands out the most – chargeback fraud. It occurs when a consumer requests a chargeback from the issuing bank after actually receiving the product.
A chargeback is merchants’ real affliction, since consumers may resort to it even without any fraudulent intent. Getting a refund directly from the bank instead of resolving an issue with the merchant first is often more convenient for customers. This became known as friendly fraud, which accounts for nearly 80% of chargeback claims.
However, chargeback fraud is almost impossible to pull off when blockchain-powered payment systems and smart contracts are in place. First of all, smart contracts imply that funds are released only when certain conditions are met. Second, once the transaction is completed, there is no opportunity to reverse it.
2. Data privacy
Almost every move we make online is tracked and analyzed by companies to understand our preferences and create a personalized customer experience. Any e-commerce brand has to deeply analyze consumers’ data to stay competitive in today’s market. Although there is the never-ending debate on how ethical it is, there are consumers who are happy to ‘sell’ their data for the sake of a better shopping experience. On the other hand, there are as many of those who refuse to compromise and hand out their data, preferring to remain anonymous.
Blockchain offers a solution for both of the cases. Thanks to blockchain’s decentralized nature, consumers have the choice of either letting other parties access their data or simply not, depending on how much they value their privacy.
3. Speed, cost, and place
Most consumers are unaware of how complex online transactions are. A typical credit card payment usually involves more than six participants. While on a lucky day a transaction can be completed in a few seconds, it may take up to five days in the worst-case scenario. Moreover, every participant in that process has their cut, which is the reason why almost every e-store requires a minimum order amount to accept credit card payments.
It gets even worse with international money transfers. For example, for every cross-border payment of $200, the fee to be paid ranges from $7 to $14. This is especially daunting for small and medium-sized businesses set out for international expansion. They have no choice but to spend an unreasonable amount of their budgets on transaction fees. There are also spending limits depending on cardholders’ locations.
However, blockchain-powered payment systems can solve these problems. Again, due to its decentralized architecture, blockchain technology takes intermediaries out of the equation. Thus, blockchain adoption significantly reduces cost and time of transaction processing, and the location of both buyers and sellers becomes irrelevant. This is a win-win situation for everyone.
4. Trusted reviews, at long last
As reported by BBC earlier this year, the problem of fake reviews is rampant, damaging for both merchants and consumers. People can’t make informed decisions, and businesses are always under the threat of fake negative reviews left by their competitors.
Blockchain can potentially make it much more difficult to create fake online accounts. In this case, it would come down to matching a reviewer’s wallet address to the address of the person who made the purchase. This way, review authenticity can be verified, with more trusted data on products and services made transparent.
Challenges of blockchain adoption
Despite the future of blockchain in e-commerce looking bright, there are certain implementation challenges still present.
- Mistrust. Any new technology is always a subject of confusion and mistrust. Although blockchain is one of the most secure technologies today, its novelty, decentralized organization and lack of average user applications are still alarming for potential adopters, especially for the general public. It will require a handful of globally recognized organizations, effective marketing, and plenty of user-friendly applications for the tech to go mainstream.
- Upfront costs. There is no doubt that blockchain is a perfect solution to many problems in the e-commerce sector in the long run. However, even though business owners might understand its great potential, the upfront costs of blockchain system adoption can be terribly high. Also, the transition from a traditional e-store system to a blockchain-powered one involves a major revamp of the underlying data management infrastructure and practices behind online stores.
- Scalability. Imagine Amazon becoming a blockchain-based marketplace tomorrow. The number of transactions to be processed would simply exceed the current capabilities of blockchain. That’s why the industry will be holding on to the existing payment processing options unless blockchain-based alternatives prove scalable.
The e-commerce market is on the verge of another revolution, with blockchain leading the tech pack. As with every innovation, it will take a considerable amount of time before this technology is globally recognized as the preferred solution for conducting business online. While tech-savvy consumers and blockchain enthusiasts can only wait for the big change to come, businesses need to be thoroughly prepared to adapt for the penetration of this new technology. As e-commerce has changed the way we approach shopping, blockchain is set to transform the way we shop and conduct business online.
Written by: Ivan Kot
Ivan Kot is a Senior Manager at Itransition, focusing on business development in verticals such as eCommerce, Business Automation, and cutting-edge tools such as Blockchain of Business. He began his career as a developer, taking different positions in both web and mobile development projects, and eventually shifted focus to project management and team coordination. Ivan’s everyday motto is: if something has to be done, it has to be done right.