Memo: The Internet Economy

Stripe says, “The internet economy is everywhere.” The data is proving so. But with democratization comes seasoned technologies impacting the lives of new customers, for better or for worse. Look around: after years of building, and one pandemic that pushed the pace of retail technology, eCommerce has spread its wings beyond the major hubs that industry media typically expects. Customers are transacting in cities, suburbs, and rural areas that don’t typically make top metropolitan area lists.

In its report on this phenomenon, Stripe looked at where companies processing more than $100 million a year were located. From 2017 to 2021, it’s sprawled outside of traditional tech and metropolitan areas. From the Stripe analysis:

Over the last five years, internet commerce grew faster in Washington, West Virginia, and Ohio than in any other states in the US. Smaller cities are among those leading the push. During this period, payment volume on Stripe increased 40x in Columbus (Ohio), 20x in Richmond (Virginia), and more than 5x in Atlanta, Charlotte, Denver, Detroit, and Des Moines (Iowa).

The analysis pointed out that while overall growth slowed following the initial season of pandemic growth, the democratization of the internet economy will be key to continued economic recovery, as growth presents new opportunities for new revenue in new markets (and the enabling of new, localized economic flywheels). Stripe noted, much like Shopify’s leadership often does, that the “barriers to entrepreneurship” have steadily declined and the unlocked, dormant talent and capital have increased as a result.

While the story has been that eCommerce penetration has fallen to pre-pandemic trends, Stripe’s data suggests that more people are shopping online in more parts of the country. Regional eCommerce penetration should be viewed as significantly as its Census-driven cousin’s national measure of the same.

One contributor to this regional growth is the spread of buy now, pay later firms. With the likes of Klarna, Affirm, Afterpay and their competitors available on more retail checkout pages, access to the lending technology has democratized. According to a recent Washington Post op-ed, about 4% of online purchases in North America are paid for using a BNPL, and usage is on the rise as the holiday shopping season clashes with high inflation. And the more that eCommerce interest and BNPL technologies continue to grow outside of major cities and into rural areas, the more the ugly side of the internet’s new layaway system will begin to show.

The Washington Post argues in its opinion piece that BNPLs need to be regulated, especially as usage is on the rise as well as defaults. BNPLs approve consumers within seconds, setting up n no-interest payments in a series of 4-24 installments. Late payments come with fees, and consistently missed payments could result in a customer being denied access to a BNPL checkout on future tries. But the assessment is relatively brief, the Washington Post points out. For example, it doesn’t take into consideration how many other purchases from BNPL companies the customer is paying off, and data shows that the percentage of people who have more than 10 loans is on the rise, exceeding 15% in the fourth quarter of 2021. People who use BNPL are more likely to be in vulnerable financial situations, and a reliance on BNPL loans only exacerbates that.

New academic research on more than 10 million Americans reveals a related and worrisome trend: People using these products are more likely to experience “rapid increases” in bank overdraft charges and credit card interest. That’s because “buy now, pay later” companies typically have shoppers use autopay when they sign up, meaning they link a debit or credit card to the account.

Concerns have been flagged about behavior from BNPLs that could also be considered predatory when you take vulnerable debtors into consideration. These companies – many of which have been upfront about their ambitions to be more than just a BNPL service – are collecting user data upon checkout and using that to promote and market more purchases to them, therefore potentially exacerbating the cycle of debt. As the internet economy spreads, BNPLs are useful keys to understanding more customers in more areas.

Wider access to the internet economy increased overall US job creation by 12% in 2021, including a 27% increase in rural areas. This includes non-traditional tech centers like Ohio, Alaska, and North Dakota, which saw the greatest percentage increase in jobs fueled by the internet economy.

Regulation is likely to come. The Consumer Financial Protection Bureau (CFPB) and Capterra have both concluded that low-income consumers are “the core demographic of BNPL services

Black or African American (46%) and Hispanic/Latino communities (56%) were more likely to use this lending option at least once within the past year, compared to other demographics. Nearly half (45%) of Millennials, 33% of Gen Z, and 33% of Gen Xers financed at least one purchase using BNPL.

So maybe eCommerce isn’t at 20% penetration like Shopify, Meta, and others believed it would be by this point of 2022. But there’s something to be said about the rate of diffusion for new geographies and new consumers. We’ve yet to quantify diffusion’s impact on the future. Stripe maintains a data-driven approach to business and even so, the online retail explosion in cities like Atlanta, Charlotte, Richmond, and Columbus, Ohio surprised them. Who knows what surprises are next in line.

By Web Smith | Edited by Hilary Milnes with art by Alex Remy and Christina Williams 

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