Exploring the transformative impact of social commerce on consumer behaviour and the lurking risks of online scams.
There are a million conflicting stats about social media. Still, the one that has been playing on my mind this quarter is the one cited by DataReportal in their Digital 2024: Global Overview Report. In it, they surveyed American citizens about their social media usage, specifically how much time they spend scrolling.
To help contextualise the data, they expressed the numbers as a proportion of the day people spend scrolling, clicking, or posting. Startlingly, according to their figures, the average American spends 15% of all their waking hours on social media sites. Given that this skews heavily by age, there must be a fair cohort who barely, if ever, look up.
So, it is no surprise that there has been a Social Commerce gold rush with companies finding ever smarter ways to convert their pitch—selling access to a self-selecting cohort of eyeballs—into actual transactions. In late 2022, McKinsey forecasted that, by the end of this year, 5% of all US e-commerce would operate through social media channels. Their figure for China, home of the super-app, was 14%.
For the platform players, it makes perfect sense. Offering measurable, bankable transactions is more valuable than mere advertising. And given that Meta alone generates annual revenues of over $130 billion from their social media apps, you can sense the scale of the opportunity.
For larger retailers, especially in fashion and cosmetics, social commerce is a surefire way to turn show-and-tell into show-and-sell. A YouTube video of an influencer showing how to apply eyeshadow or an Instagram shot of her looking cool in must-have shades will be way more valuable if those images come with a tag that allows the viewer to buy what they see with a single click. Social commerce is also an exciting way to turn a simple live-streamed fashion show into a place of commerce with all the urgency of a live auction.
The appeal is equally compelling for the smaller players, who rely on Instagram, Facebook, etc., to engage their customers. Owners of these businesses, who must often be marketing directors, CIOs, heads of operations, and CEOs… all at the same time, can transact without special website-building skills as long as they are comfortable posting on social media.
Everyone is a winner here. For consumers, Social Commerce is fast, easy and convenient. For retailers, it’s a new channel of immediacy and helps bridge the space between general marketing and actual selling. For social media players, it’s a chance to generate huge revenues and, at the same time, further extend their level of engagement with their user base.
Everyone? Well, almost. A report commissioned by Lloyds Bank in May 2023 found that 80% of all UK payment scams by volume start “In the tech sector”. Specifically, they cite that 68% of all such payment fraud comes from sites hosted by Meta: Facebook, Instagram, and WhatsApp. With an average consumer loss of £570 per incident, these numbers get very big very quickly. The banks are not winners.
While sympathy for large banks is unlikely to lead to an outpouring of public grief, this does feel like another instance where the incumbent players are burdened with compliance and accountability that the newer entrants can dodge.
Retailers can certainly play their part, too, and, by and large, are doing so. After all, a consumer ripped off by a fake website will usually blame the brand before they blame themselves. It is still too easy to set up a social media account with little in the way of ID verification, and once there, it is even easier to start trading. Social media is more anonymous than any other form of communication—ask your local neighbourhood troll. Good controls will help sellers mitigate consumer-driven fraud, but combatting brand impersonation is far harder. So far, the options seem limited to vigilant monitoring, aggressive responses, and fast consumer communication.
Social commerce is also an exciting way to turn a simple live-streamed fashion show into a place of commerce with all the urgency of a live auction
As long as there is no pressure on the social players to step up, it seems unlikely that they will choose to increase their development cost to solve this or introduce friction into their slick and speedy consumer experience.
Where does this all end? In the UK, we have some very active consumer champions (from Martin Lewis and the BBC to good old Which? Magazine. These groups are already beginning to warn about the problem, but without a convincing response, how long will it be before they advise consumers never to buy through social commerce?
Whether a plugged-in Gen Alpha will listen to the fusty old Consumer Association remains to be seen, but these messages tend to filter out in the end. My guess is that the platforms will have to do something sooner or later to protect their transaction revenue streams.
The questions are whether it will be soon and whether it will be enough.
A year ago, the Australian regulator brought the social players into the fold, and they have already seen a positive impact. Here, as long as the Payments Systems Regulator puts all the responsibility for prevention and reimbursement on our industry alone, social commerce companies have no incentive to improve.
Maybe it’s time for our regulator to widen the net?
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