Demand for the Circular Economy Fuels the Next Big E-Commerce Innovation
Updated: Jan 11
Big and global, yet solvable problems in e-commerce have provided great opportunities for innovative start-ups. These success stories have defined entirely new industry categories.
This has resulted in a pattern where each big e-commerce innovation opens the door for the next chapter in the industry. Over time, we have seen true game changers solving merchants’ problems that emerged with the mass adoption of the Internet or creating trust in online payment systems.
Today, the world is facing the problem of how to reduce excessive electronic waste and circular economy solutions are the key to sustainability. They help tackle the mountain of electronic waste, which will grow to 74 million tonnes a year by 2030 - an enormous amount that is heavier than the Great Wall of China.
That’s why it’s critical to keep products in use for as long as possible and enable users to extract maximum value from them.
PayPal: Handling Online Payments on Global Markets
In the 1990s, when e-commerce took off, merchants and consumers understood that trading is not locally limited anymore, but the whole world could be one big international market. Each customer could purchase from anywhere in the world and each merchant could expand their presence globally.
The Internet opened communication between potential trading partners, but a universal and global way of settling had to be included. In 1998, Elon Musk and Peter Thiel understood this problem and its potential and founded PayPal, which ended up defining a new category - online payments.
Klarna: Creating Trust and Safe Transactions
After Paypal had established the structure for online payments, trust issues and avoiding fraud became relevant. This paved the way to solve the next specific problem in e-commerce - building trust between merchants and consumers for safe transactions.
Consumers are vulnerable to many risks when shopping online: will the product arrive at all, will it look as was promised, what are the warranty options, etc. Merchants could remove this uncertainty by not charging consumers in advance but after shipping the products. By doing so, merchants would open themselves to various risks such as is the consumer able to pay for the product, what is his credit history, is the consumer who he claims to be, etc.
In 2005, Sebastian Siemiatkowski, Niklas Adalberth, and Victor Jacobsson founded a financial services provider Klarna, a bridge of trust between the merchant and consumer. The company allows consumers to pay later for their purchases while securing instant payments to merchants. Klarna developed an infrastructure to authenticate and instantly score customers in the e-commerce checkout. In addition to building this foundational trust, Klarna defined a new category in online payments - buy now, pay later.
Fairown: Reducing Waste Through the Circular Economy
After Klarna and its copycats established processes of instantly scoring customers in e-commerce pretty much everywhere in the world, the time was right for the next e-commerce innovation.
The nature of trading has been linear: a product is produced, sold, and thrown away. This creates a paradox where more product innovation generates more trash, even though new products themselves are more energy efficient with better usability and functions.
Throughout a product’s life cycle, over 80% of energy is used in production, which makes it critical to keep products in use for as long as possible.
For example, a PC can be useful for 10+ years, but different user groups value different functions: a gamer or a programmer is far more critical towards new technology updates than a student just putting together a paper for a class.
In 2018, Hendrik Roosna and Taivo Türnpu founded Fairown to enable a new breed of financed product subscription plans to reduce excessive waste and manage product life cycles.
Fairown’s mission is underpinned by the circular economy, centred around producing, consuming, and reusing products, thereby reducing excessive waste and the need for raw materials by extending products’ lifetime value. Fairown offers a complete suite of software, services and financial integrations to offer products for monthly subscriptions and manages the entire product life cycle from purchase to periodic renewals, repurposing, and recycling.
Fairown’s technology allows merchants to:
integrate this payment method into their e-shop;
get paid 100% in advance;
agree on product renewal cycles, i.e. when the consumer needs to return a product to replace it;
save on advertising and customer acquisition costs thanks to predictable and recurring transactions with the same consumer;
build new business models based on returned products.
Product subscriptions ensure that consumers get:
affordable monthly payments for their favourite products;
financial initiatives to return the product and upgrade to a new one when it's time for the next product life cycle;
a sustainable alternative to mass consumerism and peace of mind that their old product won’t end up in a landfill.
This is the definition of a circular economy where used products are taken back and given a new life in the hands of a new user.
The product might be refurbished or repaired, but it can still be reused up to the point where no more value is left. At that point, the products are taken back by merchants who produced them, so components of these old products could be used for making new ones.
This cycle of reuse can solve problems around scarcity of raw materials and increase supply chain independence for manufacturers. For example, manufacturers could use metals and components from old phones to produce new devices and be less affected by the chip crisis.
If you are interested in how product subscriptions can help your business grow and become sustainable, reach out to us today!