Promising, but not a sure-fire winner

Online commerce experienced a huge boost from the Corona pandemic. With the return of more normality, this growth is likely to slow down. However, the structural trend remains intact. Platforms are benefiting in particular, because network effects are the economies of scale of analog mass production in the digital world. When it comes to payment systems, banks are losing out, and the importance of cash is dwindling in favour of digital wallets. With "buy now pay later", a convenient but double-edged payment offering in the form of consumer credit is spreading under a new name. E-commerce and payment stocks are interesting for investors because of the structural trend. However, close analysis is essential for these consumer-related stocks in the current difficult market environment.

For a long time, online retailing worldwide benefited from the Corona pandemic and accelerated a structural change in consumer shopping behaviour worldwide: once they have opened an account with an online retailer and are familiar with the processes, usage should tend to increase. This newfound familiarity with e-commerce, across all age groups, could see the global share of online sales increase from just under 15% in 2019 to 21% in 2021. During the height of the Corona pandemic, quarterly growth was as high as over 50% in some cases, as consumers had no other option but to shop online due to numerous lockdowns. This fueled stocks from this segment, which multiplied in some cases. At the same time, pressure on stationary retailers to invest more heavily in e-commerce increased.


However, due to the high growth rates, base effects also became higher, making it difficult for companies to maintain growth. This effect, coupled with high inflation, the reopening of brick-and-mortar retailing and a poor economic outlook, caused online demand to normalize and growth to drop to just under seven percent in the first half of 2022.

However, differences in categories and product groups were also seen here. Luxury items, for example, continue to sell well. In the second half of 2022, the high base effects will ease, indicating better growth. However, the other risks will remain. Nevertheless, the aforementioned structural drivers of this development are intact, and the e-commerce share could increase to more than 30 percent by 2025 in the U.S. alone, according to forecasts, which would correspond to average growth of 13 percent per year. In the long term, penetration rates of over 45 percent are conceivable, as has already been the case in some parts of Asia.

Platform as a success model

Platform models and online marketplaces are clear beneficiaries of this trend, as they benefit particularly from the great scaling potential. In these digital ecosystems, companies benefit from network effects. These are to the digital economy what economies of scale are to industrial mass production. Most of these digital ecosystems span multiple industries and involve different industries, partners, customers and companies.

Some of the large online marketplaces (Amazon, Alibaba, eBay) discovered the advantages of the network effect for themselves very early on and expanded their platforms accordingly. Amazon, for example, opened its platform to other companies early on and put the customer in the foreground in order to offer him this ecosystem. This allowed external companies to offer their products on Amazon and also to use Amazon's logistics and various other services. Amazon itself used the newly acquired information and data points to expand the entire ecosystem and introduce a variety of new business models (cloud infrastructure, Prime, payment systems, advertising, health offerings). This ecosystem provides customers with a unified and easy-to-use system that means added value through a variety of services, products and insights. In addition, the system enables platforms to grow exponentially and outpace normal market growth.

Stationary retail goes digital

However, the Corona pandemic has also led to a reassessment among brick-and-mortar retailers. The switch to a platform economy makes sense not only for the large companies mentioned above, but also for smaller retailers. Because if a retailer joins a marketplace, he does not have to laboriously set up and maintain a web store himself, but only needs to add relevant product data there in order to offer his products or services on one of the large platforms. This change in thinking should continue to provide great potential for e-commerce growth in the future.

However, one of the major problems of online retailing should not be neglected: In Germany alone, nearly 500 million items ordered are returned each year, according to research. On average, every sixth order is returned, in fashion even every second. This results in average return costs of 20 euros for the retailer and reduces the margins of e-commerce companies. Returns not only mean lost sales, but they also cause personnel and process costs. However, retailers see great potential in digital technologies such as sizing for fashion to reduce the number of returns in the future.

E-commerce payment channels: banks miss out

Another technology related to e-commerce platforms is payment processing. Banks are completely missing out on the new development in the payment services industry, even though they are trying to penetrate the market with Paydirekt and Euro card systems. They can no longer map the innovative and highly technical developments for themselves and will have to leave the field to the large tech companies. These are increasingly interested in digital payments and are investing large sums in research and development in order to participate in the growing market.

Wallet is the new purse

Cash is being used less and less in Germany. In 2021, only 55 percent of all daily payments were made in cash. In 2020, the share of cash payments was still 61 percent; in 2017, it was 74 percent. The two years of the pandemic have changed consumers' everyday lives - including shopping and payments. Online purchases and contactless payments are becoming increasingly popular. Card payments now account for a share of almost 31 percent; in 2017, it was only 23 percent. It is very likely that more and more Germans will replace their physical wallet with an electronic wallet in the future. This is also already the case in e-commerce. In 2021, one-third of transactions there were processed via a digital wallet; in 2019, this figure was still 23 percent.

Buy today, pay tomorrow: A new debt trap?

A new growth market for digital wallet providers is "buy now pay later" (BNPL). According to a Global Payments report from 2021, the BNPL payment method (pioneered in Europe by Klarna) will account for ten percent of all e-commerce transactions by 2025. This corresponds to more than a tripling of the current share of just under three percent. As a result, BNPL's sales volume could rise from $159 billion in 2021 to just under $420 billion in 2025, representing a growth of nearly 30 percent per year.

PayPal, one of the largest Western digital wallet providers, is also now offering its customers a BNPL model to increase purchasing flexibility. If customers opt for this payment method, they can finance their purchase over one, three, six, twelve or even 24 monthly instalments. As a result, companies retain customers longer on the wallet and can gain more data on customer shopping behaviour and increase their average revenue per customer with additional features. However, the rapid growth of BNPL providers such as Klarna, PayPal, Afterpay or Affirm also poses new risks, which can be observed especially among younger customers. The increased use of BNPL, coupled with high interest rates charged by the providers, can also cause consumers to fall into debt more quickly or buy products they cannot actually afford. As a result, regulatory pressure could also come to bear on companies in the future in order to control this lending more closely.

Growth trends with shadows

E-commerce and payment are structural growth trends. However, the recent sell-off of technology stocks on the world's stock markets has put them under increased pressure. In the current market environment, it is also necessary to differentiate precisely, as a recession would naturally hit consumer-related sectors harder. Despite all the growth prospects, investors should therefore keep a close eye on how the market environment, consumer prices and consumer behaviour develop.


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