KEY POINTS

  • Chat apps are the next frontier for digital commerce. Users spend more time on their smartphones in these apps, like Facebook Messenger, WhatsApp, and LINE, than just about anywhere else. As retailers are seeking out new channels to access consumers and increase their spending, chat apps are one major possibility for commerce. And that's signaling to other firms, like banks, that it might be their time to jump in as well.
  • But without payments functionality, the opportunity is extremely limited. Customers can — and do — ask for support, take advantage of deals, and browse many stores within chat apps. But when it comes time to pay, users have to switch to another app or the mobile web — a turnoff that could hinder adoption and lower conversion rates.
  • There are a number of ways that payments firms are entering the space. Most are teaming up with retailers, often those they already count as clients, to enable customers to make payments using their mobile wallets or processing features within chat apps. That’s allowing retailers to get to the space faster while opening a revenue opportunity for payments players. Others are taking less direct approaches, working to increase consumer engagement in a way that promotes more spending offline.
  • We’re at the beginning of an adoption curve, so digital payments providers shouldn’t expect massive success quickly. Instead, early adopters should keep in mind that chat apps are a long-term play, and it’s possible they won't be profitable right away. But as firms work to grow consumer awareness and improve the experience, the technology will eventually become mainstream, which makes getting in early and becoming established worthwhile.
  • In the long run, it’s likely to be a major market. Chatbots are massive in Asia. They’re not going to be as big in the West, thanks to a diminished propensity for mobile payments overall. But even a small slice of that market could be game-changing for payments players, because it could lead to new customers, rising volume, and increased revenue. That makes the long-term investment and upfront costs likely to be worthwhile.

Introduction

In the US, the way consumers browse, shop, buy, and manage their money is beginning to change. Mobile dominates, and brick-and-mortar retail is suffering as a result. Retailers are being forced [...]