Blockchain For E-commerce: 12 Possible Use Cases

  • 4 December 2018
  • Sam Mire

In 2017, e-commerce — the category governing commercial transactions executed electronically or using the internet — was the preferred method for approximately $2.3 trillion in B2C sales. That figure is expected to be as high as $4.5 trillion by the end of 2021. And B2B e-commerce was even more substantial, accounting for $7.7 trillion in sales. This growth should come as no surprise, considering the insatiable desire for instantaneousness and convenience that we have developed in virtually every facet of our lives.

But e-commerce presents some unique challenges to the financial sector that must be addressed. The rise in e-commerce indicates that users continue to prefer self-service methods, rather than engaging directly with customer representatives to facilitate transactions. The security measures guarding these e-commerce systems must be top-notch, especially considering that a reported 57% of online shoppers made an online purchase in the past six months from at least one overseas retailer.

The proliferation of e-commerce has necessarily meant an explosion in consumers handing over their financial information to retailers and other online service providers with little thought. That is, until the likes of Macy’s informs its online shopping customers that their data may have been compromised, or a study reports that 80–90% of login attempts for online retailers are derived from hackers attempting to use “credential stuffing” tactics — taking advantage of users’ compromised login info.

You will frequently read that the blockchain can significantly improve the barriers to breach in many sectors, providing a superior alternative to the traditional username–password system that has proven long outdated and highly vulnerable. Along with providing greater efficiency, replacing the archaic, easily exploited facets of e-commerce with blockchain-linked systems will provide greater confidence in e-commerce.

Blockchain for ecommerce - Possible use cases

Crypto Payments

Blockchain use cases in ecommerce - Crypto Payments

Cryptocurrencies as a form of payment have gained a modest foothold within mainstream eCommerce, but enthusiasts understand there is still ground to be gained. In 2016, roughly 11% of Eastern Europeans were using cryptocurrencies as a form of everyday payment – an impressively high figure. But, only 1% of residents in the UK did so, and the second highest figure was a relatively modest 4% of French residents using cryptos as a means of daily payment. There are flaws with the vision of crypto as a replacement for cash and cards, to be sure. The store of value of cryptocurrencies makes people less eager to part with them, and Bitcoin transaction fees are not always reasonable. But, more and more outlets are accepting cryptocurrencies as payment, from rental platforms to Amazon subsidiaries and beyond. The number of brick and mortar retailers accepting Bitcoin as payment jumped from 8,665 in Q1 2017 to 11,291 by the end of the year, an indication of how rapidly crypto payment adoption has expanded. Optimistic projections posit that cryptocurrencies could become a mainstream form of payment in as little as a decade, though this is no certainty.

One of the more straightforward use cases for blockchain in eCommerce is the use of cryptocurrencies as a means of more secure, fee-free payment. Cryptocurrencies wouldn’t be possible without blockchain technology, and using them as tender for commercial purposes offers several benefits, including fewer instances of fraud due to more rigorous authentication and security measures, less need for fee-hungry third party processing agencies, and constant access to markets. The emergence of several user-friendly digital wallets has helped ease the barriers to entry for new users, and the addition of crypto payments into the mainstream of eCommerce could allow retailers to attract a new, largely untapped segment of crypto-inclined consumers.

Protecting Businesses from Chargeback Fraud

Blockchain use cases in ecommerce - Protecting Businesses from Chargeback Fraud

Fraud comes in all shapes and sizes, and credit cards are one of the preferred methods for fraudsters looking to make a quick buck. Chargebacks, which occur when a bank forces a credit card transaction to be reversed, are often used by fraudsters even when goods and services have been received. For this reason, chargebacks often are the bane of merchants, who can be left holding an empty bag after they’ve upheld their end of the bargain.

Chargeback fraud is also referred to as friendly fraud — although whoever came up with such a bass-ackwards name should be flogged. One study found that 81% of cardholders have filed a chargeback out of convenience instead of contacting the merchant directly to request a refund. Because chargeback fraud protections were developed in the pre-internet era, merchants have little chance of fighting back against allegations that they were involved in a transaction that was illegitimate. This has opened the door to a rash of chargeback fraud cases, and merchants often have to expend resources deciphering true fraud from those who are simply taking the most convenient route to get a refund.

With payments facilitated using Bitcoin and other cryptocurrencies, there is no opportunity for payment reversal. While a payment can be sent back in the case that a mistake is made, a final payment is truly a final payment, which limits many of the avenues that fraudsters currently use to perpetrate their schemes.

Restoring Control of Purchasing Data to the Consumer

Blockchain use cases in ecommerce - Restoring Control of Purchasing Data

With a rise in e-commerce has come a sort of Big Brother effect. Instead of browsing physical aisles and displays as we would in a Walmart or Saks Fifth Avenue, we do so online, and our every move is being tracked to produce in-depth analytics about our likes, dislikes, and tendencies. Consumers have actually been proven to value the highly-personalized customer experience that is offered by the likes of Amazon, but many remain unaware of how that personalized experience is created.

In the current system, brands that rely on e-commerce have no choice but to delve further and further into consumers’ habits to remain competitive. Marketers at many of the world’s most lucrative, well-known companies plan to more than double their investments in data analytics “to improve the customer experience.” Walmart’s online sales rose 50% in Q3 2017, and experts believe that the sales progress is largely attributable to greater investments in their data stockpiles. But what about those consumers that prefer to shop on their own without data collection “improving their experience”?

The blockchain offers greater security and anonymity, and e-retail platforms built on the technology offer a number of consumer protections. There is no central power observing and collecting data on the blockchain, as there is on most sites where we do our shopping and digital socializing. By placing the power of data control in the user’s hands, they are free to either sell that data to interested third parties or simply sit on it, should they value their privacy enough not to share.  

Companies Trying to Solve This Problem

  • REME Coin Designed to reward consumers with cashback when participating in data sharing.  

B2B Transaction Ecosystems

Blockchain use cases in ecommerce - B2B Transaction Ecosystems

By 2022, the value of the cross-border payment ecosystem is expected to top $24 trillion. Seeing as this does not even account for domestic payments, it’s plain to see that payments — which make the world go round — are a lucrative business. The intermediaries who facilitate the never-ending cycle of money being sent and received recognize the sheer amount of cash changing hands, and have made an art out of taking their cut. This has created an ecosystem rife with fees and expenses.

To get a picture of the chunk that is taken out of each payment, consider that a cross-border payment of $200 requires an additional $14 in fees to be paid. In 2017, these remittance fees totaled about $30 billion. Small and medium-sized businesses lose a disproportionate amount of their budget on these sort of transactions. One analysis found that small and medium-sized enterprises that send an average of $13,000 per month in cross-border transactions pay more than $2,700 per month in fees alone to financial institutions.

Financial institutions from the United States to Singapore are working on a commercial solution to allow banks and other businesses to conduct border-independent transactions between each other, eliminating the middlemen and, in doing so, significantly lowering the cost of doing business. 

Companies Trying to Solve This Problem

  • Sweetbridge Building blockchain powered solutions for B2B e-commerce.
  • Crowdz – Partnered with Barclays, Crowz is working to change B2b e-commerce by changing financing models.  

Accelerated, Simplified Card Network Payments

Blockchain use cases in ecommerce - Accelerated, Simplified Card Network Payments

The average person doesn’t usually consider just how complex the credit card payment processing cobweb is. In a typical credit card payment transaction, as many as seven different entities are involved in ensuring that the purchase is completed. The payment has to go through the cardholder, to the business, to the independent sales organization (ISO), then to the merchant processor, on to a settlement bank, then an issuing bank, and finally the card network, such as Visa or American Express.

While these processes are typically completed within seconds, any hitch in the process can create significant confusion, and resolving issues that befall a single point within the seven-step process can be tricky. Plus, each institution adds to the overall cost of doing businesses, which is why business owners often set a minimum sales amount before they will accept a credit card as payment. Given that 47% of companies consider speed of settlement to be the single most important issue in conducting a transaction, investment in new, faster, more simplified technologies is a logical next step for the industry. 

As a general principle, automation is intended to speed up the rate of doing business, and it typically does when implemented properly. It also tends to decrease the cost of doing business, and the fees that are tied to a given transaction. This is why the blockchain is being probed as a means to automate payments between merchants and credit card companies. The proposed system would use blockchain technology to send and receive requests for payment, relying on algorithmic processes to either accept or reject these requests. If this system proves to be a success, the result could be faster, more cost-effective systems for payment processing.

Companies Trying to Solve This Problem

  • Zeex Using crypto for instant payments in online retail.  

Decentralized Cross-Border Trade

Blockchain use cases in ecommerce - Decentralized Cross-Border Trade

Transaction fees, achieving a fair exchange rate, and reducing fraud are three of the primary concerns of businesses who regularly engage in cross-border financial transactions. The blockchain is a technology that its proponents believe can assist in mitigating all three of these concerns, with a decentralized, largely-automated payment framework meaning fewer fees and stronger security.

According to McKinsey, the average time it requires to complete a cross-border transaction is three to five days. Meanwhile, transactions using cryptocurrencies, which hold a uniform standard of value not subject to varying exchange rates, routinely take only a matter of minutes to complete. Additionally, the average global remittance cost was 7.45% of the total transaction in Q1 2017, a significant figure that could be reduced by adopting a single technology — blockchain — in lieu of the intermediary banks and other institutions that are currently engrained in the global payment structure.

Whether the transaction being conducted is an exchange of cash for goods or a payment owed, the blockchain offers the ability to reduce the cost of fees as well as the differences in exchange rates that can complicate payments between payers and payees. By decentralizing and automating these transactions, less fees are paid to far fewer intermediaries, as they are replaced by a single technology. 

Companies Trying to Solve This Problem

  • AORA – Cross-border e-commerce platform powered by cryptocurrency transactions.

Lower Costs for Consumers and Retailers

Blockchain use cases in ecommerce - Lower Costs for Consumers and Retailers

Taking a cut of the total payment in e-commerce transactions is a significant manner in which merchants make their profits. Unfortunately, the more players in the payment network, the greater the cost to the consumer ultimately is. The lack of direct contact between buyer and seller both complicates customer outreach and forces customers to pay more money to more entities.

Customers are clearly looking for a reduction in the cost of doing business online. One study found that nine out of ten customers said that free shipping — à la Amazon Prime — was their top incentive to do more online shopping. But retailers, who have not all benefited from the rise of e-commerce, may also see significant benefits from blockchain adoption. As it stands, an average of six in ten retailers have been negatively affected by a common aspect of online commerce: the growing number of people who return their items after purchase. 22% of brick and mortar stores choose not to sell online because of the costs of delivery and returns, while many up their prices to cover these costs.

The blockchain, with its automated nature and independence from a network of intermediaries, will ultimately reduce overall costs for consumers as well as retailers, thanks to a decrease in the number of fees that have to be paid to additional parties. While this may not completely solve the issue of expensive return costs, fewer intermediaries and associated costs may prove enough to make more retailers competitive in the online space.

Companies Trying to Solve This Problem

  • RateX – Leveraging blockchain tools to help consumers save. 

Restoring Ownership of Marketing Data to the Retailer

Blockchain use cases in ecommerce - Restoring Ownership of Marketing Data

Currently, retailers operating online have little control over the valuable information that their site plays a central role in generating. User behavioral data is often not theirs to own or sell, and advertising on their product’s page is often out of their control. They are at the mercy of major retail sites, such as Amazon, or companies that own the behavioral analytics, and it can often seem like the cost of acquiring intel on consumer habits is too high, or that advertisements for competitor’s products are a bit too prevalent.

No company represents the rise of behavioral analytics — and the consolidation of behavioral data in a few hands — more so than Amazon. Amazon Advertising, the retail behemoth's data-intensive wing, has a distinct advantage in the space because of the trove of user purchasing and browsing data it maintains. Every move that Amazon makes, from its acquisition of AI security startup harvest.ai to the purchase of Whole Foods, is predicated on how they can find out more about shoppers’ tendencies to target them more effectively. Unfortunately, Amazon’s brilliance has not been to the advantage of retailers, who are left to suckle whatever they can, data wise, from Amazon’s teat.

Blockchain platforms are seeking to restore greater ownership over invaluable behavioral data to those who own and operate a web page. This will allow product and site owners to use the data how they please, whether that means keeping it to themselves, renting it out, or selling it completely. The hope is that this will create a more equitable landscape by which retailers can compete without being completely dependent on and at the mercy of tech’s largest players.

Cutting Out Middlemen in All Aspects of eCommerce

Blockchain use cases in ecommerce - Cutting Out Middlemen

Since the rise of financial technology within the world of e-commerce, analysts have detailed what has been described as “the new middleman.” These new middlemen are e-commerce platforms, which remove many of the intermediaries of the traditional supply chain, replacing them with a single or, at most, a couple stops in between retailer and consumer. But even with this disintermediation process becoming the norm, new forms of intermediary have continued to pop up — after all, when somebody suddenly finds themselves less useful, they will find a way to at least  appear useful.

This has meant the persistence of fees and complications in the e-commerce supply chain. While intermediaries can provide value in roughly nine different ways, it’s clear that some middlemen are more necessary than others. And, to the extent that an intermediary can be eliminated between seller and buyer, they should be. The evolution of blockchain will almost certainly result in the simplification of e-commerce transactions that was supposed to arise from the advent of the internet and other modern digital technologies.

Platforms are taking an approach that encompasses the many facets of cryptocurrencies to provide greater value with fewer intermediaries. This includes the ability for companies to sell goods, launch ICOs, tokenize their store, offer daily deals and discounts, and more, with consumers reaping the benefits of fewer fees as the result of more direct pathways to e-commerce retailers and startups around the world.

Companies Trying to Solve This Problem

  • OpenBazaar Decentralized marketplace designed to simplify peer to peer e-commerce.
  • Ubcoin Facilitating decentralized peer to peer transactions. 

Borderless, P2P Payments

Blockchain use cases in ecommerce - Borderless, P2P Payments

The likes of Venmo, PayPal, and the Cash App have made us familiar with how easy it can be to send money to our friends and family directly. Instead of old wire transfer services, these innovative apps have allowed instant reimbursement for beers, Chipotle, or whatever other debt one may need to repay. These services have taken off primarily due to the convenience of being able to send money directly to who you want. Zelle, an application backed by banks such as Wells Fargo and Bank of America for peer-to-peer payments, was responsible for the movement of $75 billion in 2017 alone. Venmo, which is owned by PayPal, was no slouch either, with $35 billion worth of transactions taking place on the social payment app in 2017.

But as successful as these platforms have proven to be, few of them offer the ability to exchange money internationally. Most of the instant money transfer apps and services that are most popular in America don’t allow cross-border payments. Apps that don’t offer this capability include Venmo, Square Cash, and Zelle. While other popular payment services such as PayPal do offer international remittance, they often come with substantial fees as high as 10%.

The blockchain is universal tender that is not subject to exchange rates, embargoes, fees, and other hurdles that hamper international payments, especially on the peer-to-peer level. That means that platforms in the vain of Venmo, but with international reach, can be made possible with blockchain technology — in fact, this basic principle has been proven by the international exchange of cryptocurrencies.

Companies Trying to Solve This Problem

  • AORA – Token designed to help facilitate cross-border e-commerce transactions. 

Better Payment Gateways

Blockchain use cases in ecommerce - Better Payment Gateways

Payment gateways are essential for processing the countless payments that are fundamental to eCommerce. By transmitting credit card information from a brick and mortar or online merchant, to a payment network, and then sending the details of that transaction back to the merchant or site, payment gateways facilitate the most basic transactional elements that allow eCommerce to exist. As of 2017, there were 14.4 billion credit cards in circulation globally, a figure that is not far from doubling the number in circulation as recently as 2012. As taking on debt becomes a fact of life for a generation largely saddled by it since they enrolled in university, the prominence of plastic in the commercial sector has only expanded. With millennial tech savviness has come the demand of low-effort purchasing marketplaces, and those typically rely on some form of digital transaction involving payment processing gateways. By 2020, the volume of mobile payments in the U.S. alone is expected to reach $503 billion – but for many, these payment gateways are not the ideal means of doing business in the many eCommerce marketplaces.

Certain blockchain-focused startups are seeking to improve the way that payment gateways work. One instance involves the issuance of blockchain cards and digital wallets, which will be used as a substitute from the multi-step, centralized forms of bank payment processing. By relying on more direct payments between merchant and customer using the blockchain, fees from outside payment processing agents will be reduced, and transactions will become more secure, thanks to blockchain’s superior authentication systems. 

Blockchain and Crypto-Linked Social Payments

Blockchain use cases in ecommerce - Blockchain and Crypto-Linked Social Payments

Any exchange involving cryptocurrencies is, essentially, similar to the models established by Venmo, Apple Pay, and their competitors. But users see several advantages to using cryptocurrencies – which inherently utilize blockchain – over other means of sending money digitally. Venmo has proven inadequate to protect its users from thousand-dollar scams, and the FTC’s pursuit of charges eventually led Venmo’s parent company, PayPal, to settle with the regulatory agency, which alleged that Venmo failed to disclose information to users about their ability to transfer funds, as well as certain privacy settings. Apple Pay has also been the target of criticism that it renders users far too susceptible to theft and fraud. It’s been shown that, for as little as $2, fraudsters can acquire stolen credit card data, add that information into Apple Pay, and relatively easily purchase or send themselves money at will – on somebody else’s dime. This is obviously not the sort of thing that Apple Pay users would find comforting, and though the service has many benefits, many believe that more secure alternatives lie in wait.

The blockchain already affords several benefits that traditional, digital money exchange services do not. They include constant accessibility to accounts, more stringent security measures, lower fees, and broad international access. The ability to integrate user-friendly interfaces that allow social media users to exchange payment directly – whether it is paying for content, repaying a friend, etc. – using cryptocurrencies underpinned by blockchain technology could be an attractive feature for social media platforms seeking to gain a competitive advantage.

About Sam Mire

Sam is a Market Research Analyst at Disruptor Daily. He's a trained journalist with experience in the field of disruptive technology. He’s versed in the impact that blockchain technology is having on industries of today, from healthcare to cannabis. He’s written extensively on the individuals and companies shaping the future of tech, working directly with many of them to advance their vision. Sam is known for writing work that brings value to industry professionals and the generally curious – as well as an occasional smile to the face.