At first glance, DeFi and e-commerce may seem to be only tangentially related as different parts of the ever-growing online economic activity characteristic of the 21st-century commercial space. However, a closer inspection reveals multiple use cases to address ongoing issues with e-commerce and provide savings for both consumers and merchants both.
With the retail sector experiencing tectonic shifts in activity in recent years, here we explore the ways in which e-commerce and DeFi could combine to provide novel solutions to persistent issues and improve the experience of online shopping for everyone involved.
The Next Evolution of Digital Payments?
The rise of Amazon from second-hand bookseller to a purveyor of virtually every consumer good on the planet, with an estimated number of items on sale of over 350 million, kick-started the world’s love affair with online shopping. Along with a dizzying array of ever-expanding competitors from all over the globe, such as Alibaba (NYSE:BABA) in China and Rakuten (OTC:RKUNY) in Japan, there are now more opportunities than ever before both to purchase goods and to become a merchant to sell your wares, and with the pandemic still raging, this is only set to continue.
Merchants using these online shopping giants can end up dealing with commission fees of up to 20%, vastly impacting potential profit margins. Naturally, much of this cost will be passed on to consumers, meaning that customers will ultimately pay more for the same items than they could do in a decentralized setting.
Direct selling offers an alternative to merchants, who are now able to utilize the online space to launch innovative, often niche products free from the constraints of traditional brick and mortar retail, and its accompanying reliance on a large product range to encourage footfall, such as Everjump, which can now reach its consumers and engage commercially with them in a direct, targeted way unthinkable only a few short years ago.
However, Direct selling by the merchants also has faced the, until now, inescapable dominance of credit card companies such as Visa (NYSE:V) and MasterCard (NYSE:MA), who charge their own commission, albeit lower at up to 3.5%.
This is where DeFi can really come into its own, by using the blockchain to facilitate peer-to-peer transactions which cut out the predatory middleman credit card companies. Deutsche bank research even recently published a report calling for digital currencies to do just this, specifically to aid in post-pandemic recovery.
“Worldwide lockdowns and social distancing measures have only increased the use of cards over cash. To respond, companies and policymakers must design alternatives to credit cards and remove middleman fees.”
There are some blockchain platforms that have begun to tackle this issue, and big things could be on the horizon as more and more established institutions embrace digital currencies, such as payment giant PayPal, which have recently rolled out crypto trading services dubbed “Crypto for the People”.
This presents the most obvious and immediately beneficial synergistic potential of DeFi and e-commerce, but there are other, less obvious, advantages to be gained by the combination of the two.
Crypto Loyalty Cards?
Loyalty cards and points schemes are the bread and butter of businesses looking to encourage repeat business. A tried and tested method, they have been around since a distinctly analog age. I’m sure we all remember the days of impatiently waiting for your mom as she rummages through her purse looking for that dog-eared loyalty card as she saves up another stamp towards a free coffee. You probably also know that although schemes like this feel like they should have been relegated to a by-gone era, these kinds of loyalty cards are still alive, if not well; you might well have a few cards like them in your wallet right now!
While many businesses such as Amazon (NASDAQ:AMZN) have digital loyalty points schemes, they are exclusive to their platform, and can usually only be redeemed in their stores or with partner companies, leading to exhausted customers again having to dig through multiple cards in their groaning wallets, if they even bother with the time required to fill out yet another form in order to register for the points card in the first place.
This is where DeFi combining with loyalty schemes steps in, with a single address to receive reward points wherever they shop, no matter how small the retailer. With investment for startup online companies now easier than ever to come by such as with Digital Rain, access to an established DeFi loyalty scheme right off the bat will both reduce costs for the business and encourage customers to purchase from smaller, newer online merchants, as they will not have to forgo the accruing of points they otherwise would.
A crypto loyalty card would also have the benefits of making loyalty programs more streamlined and useful, crucial for engaging younger generations and capturing repeat user behavior and usage. Smart contracts will also enable these points to be used across borders, a real benefit for the increasingly global reach of e-commerce businesses and a generation of youth with an international mindset.
Finally, the potential for fraud with traditional payment methods is well known and causes staggering losses each year, with Nilson recently predicting $40 billion in annual losses by 2029. Many of these losses end up hurting the merchants themselves rather than the credit card companies, and the added security of DeFi could only come as a relief, especially to smaller-scale merchants less able to withstand financial shocks.
DeFi is still arguably in its infancy, and its potential to engender further, as yet unknown, profound change is very great, but if the seismic waves that e-commerce has already delivered to the traditional physical-based commercial space are anything to go by, you could very well see these two natural partners linking up to rattle your shopping baskets sooner rather than later.
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