Online transactions and electronic payments are the lifeblood of millions of businesses all over the world today.
Business owners need to be prioritising their customer checkout process in order to keep up with the competition; providing online payment systems that improve the user experience is critical to achieving a higher conversion rate and lower rates of cart abandonment. That means more money in the bank for your business, and improved customer loyalty.
Whether you’re a brand new business or an established organisation looking for more information on e-commerce payment methods, this guide is here to help. We’ll go through the importance of offering a range of different payment options to users, as well as examine some of the most popular payment methods for online businesses to help you choose the online payment methods that are right for your organisation!
Why should you offer different ecommerce payment methods?
Hundreds of millions of transactions are processed every day, including from a wide range of online stores and ecommerce businesses. With competition higher than ever, ensuring the website or mobile app for your e-commerce business is of a high standard and meets the needs of your users is so important, and this extends to the options you offer when it comes to taking payments.
Choosing online payment options that make the lives of your users as simple as possible is key when it comes to improving conversion and bolstering your financial stability.
For some businesses, this is as simple as offering credit card payments and debit card payments on your site, but for others, the world of payments is becoming increasingly complex. Alternative payment methods can help give potential customers more choices when it comes to how they pay for goods and services, and can also expand the types of payments you can take (for example, cross-border payments, recurring payments, mobile payments, buy now pay later schemes and many more).
Choosing the best e-commerce payment methods for your business
The right online payment services will be different for all organisations, depending on your business model. For example, if mobile commerce and app purchases are a key stream of revenue for your business, supporting digital wallets is something that can really help improve your customer experience. On the other hand, if you have a smaller, more bespoke model, bank transfers and standing orders might be a better approach to payments.
- Do you need to save customer payment details for future subscription payments?
- Are you running a B2B or B2C-focused business?
- Are you taking and handling sensitive payment data yourself?
- What kind of order values are you looking at?
- What are the demographics of your users?
- Would they adapt well to newer payment solutions or should you continue to support legacy and common payment methods?
- Do you want to move away from cash payments entirely?
- What do checkout solutions look like for potential customers if you choose X option over Y option? Is it still easy to use?
These and many more are all questions that an organisation should be asking when it comes to choosing the right ecommerce payment methods.
Fortunately, there are many options available to streamline the payment process and make checkout more profitable for businesses, and easier for customers.
Popular methods of taking payments online
When it comes to accepting almost any e-commerce payment method, there are some technologies that need to be set up in the background. Online payment gateways and a card acquiring service are both needed for businesses to take any form of card payments online. This includes credit and debit card payments, digital wallet payments and buy-now-pay-later solutions. Ecommerce payment gateways are not required for user-managed standing orders or manual bank transfers, but these methods are generally less popular and are used in only a few specific contexts.
Credit card and debit card payments
When it comes to e-commerce payment methods, the most popular method is using credit card and debit card payments.
Millions of users every day use their bank cards to pay for goods and services, and it is one of the most secure and familiar ways to make a payment online. The average transaction with a credit or debit card takes seconds, and it’s a model that consumers are very familiar with.
To pay with a credit card or debit card, users enter their cardholder name, 16-digit card number, card verification value (CVV) and expiry date. Then, this payment request is sent from a merchant to the merchant acquirer, through the card network and bank where the transaction is approved, declined, or additional verification is requested. Then this result is sent back through the chain to allow the user to complete their purchase.
This all happens in a matter of seconds!
This requires setting up e-commerce merchant accounts and connecting to a payment gateway, which can be a time-consuming and complex process. However, merchants can also outsource this to a payment service provider (PSP) or payment processor like Acquired.com. We’ll handle the payment processing side of your credit and debit card payments to ensure your transaction costs remain low, while also giving you extensive visibility when it comes to your transactions.
Digital wallet options (like Apple Pay, Google Pay and Samsung Pay) are becoming increasingly popular as contactless payment and other alternative payment options become more popular. Mobile payment options allow users to pay using contactless technologies in person, but also facilitate electronic payment methods online.
When users download and use a digital wallet app, they are essentially making a digital copy of their plastic card! They simply enter their card details, then the card is verified and stored digitally on their mobile device.
When paying for goods in-store, digital wallets use NFC technology to make contactless payments. When paying online, the card details can be automatically populated and passed through to payment processing services without the need for users to manually input their details, or for merchants to store that sensitive data.
Digital wallets and mobile payments also have the advantage of built-in fraud protection, as every card user has to verify their card within the app before using it to make purchases. This means that fraud rates using digital wallets like these are considerably lower.
Instant bank transfers (Open Banking)
Instant bank transfers are also known as pay-by-bank solutions or Open Banking. Essentially, pay-by-bank solutions allow users to pay directly from their bank account, without going through card networks as a third party.
For users, paying using open banking feels (and is!) more secure than a card payment. Their details don’t need to be saved by merchant websites and they don’t need to wait for the payment to leave their bank.
For merchants, taking payments using open banking is considerably faster than using a credit or debit card, as the money is disbursed immediately. There are also fewer transaction fees, as the transaction can bypass processing through card networks, making open banking payments cheaper for merchants. They also convert more consistently than card payments, as the funds come directly from an account – there is no processing time or window in which chargebacks could be issued, for example.
Manual bank transfers
Manual bank transfers or direct deposits are not a widely used payment method for e commerce businesses and are more common for B2B organisations or small businesses. Manual bank transfers are carried out by the customer, and they remain in control of the entire process.
However manual bank transfers are a quick method of moving money as there are no pending or lead times associated – which means the money is transferred almost immediately!
Manual transfers can be less secure for customers, as they have to be able to strongly trust a provider before sending money via a manual bank transfer, as it can be difficult – if not impossible – to retrieve funds once they’ve been sent by bank transfer.
Direct Debit payments and standing orders
Direct debits and standing orders are payments that are set up and scheduled to be taken on a regular basis, making them perfect for subscription services.
Direct Debits have historically only been accessible to larger businesses with extensive payment strategies. However, there is a range of services now that can help small businesses manage direct debits without having to carry out all the extensive work that was required of businesses wanting to set up direct debits.
Direct debits and standing orders are sometimes used interchangeably, but there are a few key differences to be aware of.
When a user sets up a direct debit, they are agreeing for an organisation to take payments from their accounts when they are due. This may be monthly, weekly, quarterly or annually, and the amount and frequency of payments is managed by the company. This is authorised by the user when the direct debit is first set up. Often direct debits are used by utility bill companies and similarly structured organisations, as it allows them to take payments at a variable rate when this is beneficial.
Standing orders are also regular payments that come out of a user’s account, but they are controlled by the user, not by an organisation. This means that they are set up by the user and can be changed or cancelled only by the user. They are quicker and easier to set up, as there is no additional authorisation required, so standing order payments can be amended much more quickly. Standing orders are for the same amount on the same date every month, and are often used for rental and mortgage payments, or subscription payments.
Buy now pay later solutions can be used by consumers to make payments to participating merchants in interest-free instalments, or at a later date.
When paying using buy now pay later (BNPL) services, users will have to pass a fast “soft” credit check, which allows the lender to quickly accept or decline their transaction based on risk. Users with poor credit may find that BNPL services won’t accept their payments as they are deemed to be too risky.
If the user passes the credit check, they then pass through the checkout process. The BNPL provider will then pay the merchant for their goods and services. Most BNPL services will then take a fee (usually between 2% and 8%, a similar amount to most credit card providers) and pay the remainder of the purchase total directly to the merchant. BNPL services are good for merchants as they allow users to make larger payments more easily, without any risk on the merchant side as the goods will be paid for straight away by the BNPL service.
Buy now pay later services offer users considerably more flexibility when it comes to how and when they pay for goods and services, making them an increasingly popular option for millions of users worldwide. However, they do have their risks for merchants, as BNPL does encourage increased borrowing that users may not be able to afford. It can also be complicated to partner with a BNPL provider, as there are many requirements, integrations and accreditations that need to be carried out before you can start taking payments via buy now pay later services.
E-commerce payments with Acquired.com
At Acquired.com, we offer payment processing for a range of different payment methods, and offer our signature consultative approach to payment processing for all of our clients. We’re experts in helping you get the most out of your payment strategies, and providing the tools you need to facilitate growth in the payments sphere.
To learn more about our service, how to choose the right payment methods for your organisation or to get started with Acquired.com, please don’t hesitate to get in touch!