With over 4 billion views of videos under the hashtag #TikTokMadeMeBuyIt, the potential for social media platforms to shorten the sales funnel for brands is evident. However, payments technology—and consumer trust—present a challenge for brand marketers amidst an $80 billion-dollar opportunity.
Social Commerce’s Surge Has A Notable Hitch – Payments And Consumer Trust
According to a recent report by Insider Intelligence, over half of American consumers will have purchased through a social media platform by the end of 2022. According to the report, consumer spending in the US via social commerce will likely reach $80 billion by 2025—and global spending will reach $1.2 trillion. With 92 percent of consumers stating that they discovered a new product on social media and 40 percent of consumers reporting that they actively search for products while interacting on a social platform, the opportunity for brands to benefit from a social commerce storefront is significant. Results can be impressive—for example, a two-hour live shopping event on TikTok resulted in more than a week’s worth of sales at a brand’s flagship retail store.
In addition, social commerce appeals to the consumer segments that shop the most. For example, millennials and Gen Z. An October 2022 survey reveals that 78 percent of Gen Z and 70 percent of millennials reported that they are likely to purchase directly from a social media platform in the next 12 months. One reason for Gen Z’s and millennials’ high levels of engagement with social commerce is their reliance on influencers as they make shopping choices. A recent survey revealed that over 70 percent of consumers who regularly watched influencers’ live streams were likely to buy products that they recommended.
More than half of millennials and Gen Z have purchased based on a social media influencer or content creator recommendation. That means coveted demographics are looking for product purchasing guidance, interacting with influencers’ product-focused content, and are willing to buy—all on the same platforms. And many social commerce consumers want to become repeat customers: a 2022 McKinsey survey found 75 percent of live shopping event attendees wished to attend another virtual sale.
But there’s a hitch: 43 percent of consumers who would not purchase via social media said they distrusted the platforms with their payment information.
How Trust And A Payments Infrastructure Drive Social Commerce Sales
According to a Mckinsey report, more Gen Z consumers purchase directly online via social and creator platforms. A Forrester survey quoted by the McKinsey survey shows 61 percent of Gen Z adults made an in-app social media or creator platform purchase, up from 53 percent in 2020.
That growth—and consumers’ willingness to buy directly on social platforms, may be boosted—or hindered—by how user-friendly and trustworthy payment processes are for shoppers. For example, in China, where social commerce has exploded in recent years, the integration of seamless social shopping and payments made it simple for social media consumers to shift purchasing to social channels.
“Over the years, mega-platforms such as Alibaba and Tencent have used the trust they built among Chinese consumers to create a sprawling digital ecosystem and enable the rapid growth of social commerce,” the report reads. “Creator content, product discovery, community sharing, and digital-payment infrastructures are all integrated into a seamless one-stop-shop digital universe.”
While there are certainly differences between Chinese and American shopping behaviors, one point of symmetry is the significance of influencer culture to consumers’ shopping interests and the opportunity user-friendly digital payments present for brands.
“Just as the arrival of Alibaba’s Taobao Live in 2016 ushered in a new type of e-commerce, social-commerce adoption in the United States is being driven by social media and content creation platforms (such as Pinterest and TikTok) adding new shopping capabilities,” according to McKinsey’s Social Commerce: The Future Of How Consumers Interact With Brands. “These tech-enabled features allow platforms to process transactions and, in doing so, gain access to first-party customer data and expand their ability to offer value to advertisers.”
According to the report, the ability to securely manage transactions through a platform provides benefits to brands and platforms. “Instead of merely targeting consumers with top-of-the-funnel awareness campaigns, social media platforms can now draw a much more direct line between advertising impressions and verified sales.”
But gaining that first-party data from consumers requires gaining consumers’ trust, something complicated by social media’s slew of recent controversies regarding data privacy.
While a recent survey showed that 47 percent of consumers stated that they “strongly distrusted” social media platforms concerning their financial or banking data, they held high trust for traditional banks. A payment tool tailored to social commerce provided by a bank may offer a solution for social media platforms and brands attempting to boost social shopping adoption.
Enter embedded finance: a trending shift in payments strategy among retailers that may address some consumers’ reluctance to trust their payment data to a social platform. Embedded finance typically means a nonbank, such as a retailer or a brand, offering customers financial services, such as providing access to a digital wallet or branded Buy Now, Pay Later (BNPL) payments. FinTechs often offer embedded finance services in collaboration with banks for their brand or retailer clients. For example, a brand or retailer selling in-app or via a live-shopping event could offer shoppers customized payment options through the bank or FinTech and assure customers that these services must comply with strict financial data handling regulations governing financial institutions.
According to a recent survey of European retailers presented by Finextra:
Seventy-four percent of the retailers surveyed currently offer embedded financial products or services to customers, and a majority, 56 percent, plan to roll out new offerings over the coming 12 months. Retailers surveyed cited a range of reasons for creating or planning the integration of embedded finance options, such as creating a new revenue stream (41 percent), increasing customer loyalty (40 percent) and improving customer brand satisfaction (38 percent).
Per a recent report by Bain & Company, financial services embedded into e-commerce and other software platforms accounted for $2.6 trillion—approximately 5 percent—of all US financial transactions in 2021. According to the report, these transactions will likely reach $7 trillion by 2026.
Read the full McKinsey 2022 Global Payments Report