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Payment methods
A business should offer a variety of convenient payment methods for its customers.
We discuss the most popular payment methods used in digital commerce and how to select the right set for your business.
Different Payment Methods used around the globe
When expanding your business internationally, it is vital to keep in mind that each country and region have their preferences regarding payment methods. There are no simple explanations of why popular payment methods vary drastically between states. It is due to a combination of historical, political, and economic reasons.
Let’s look at some examples.
Credit Cards
Credit cards are the most common way for customers to pay online. It allows merchants to reach out to an international market by integrating a payment gateway into their business. Credit cards are mostly used in North America and Europe, with the Asia Pacific following suit.
Bank Transfers
Customers with an internet banking facility can do a bank transfer to pay for online purchases. Customer’s internet banking credentials are used to authenticate the bank transfer payment before a purchase happens. This payment method is popular in Europe.
Mobile Payments & eWallets
Mobile payments refer to any payment made using a mobile device. Due to our ever-increasing smartphone dependence, various ways were developed to allow consumers to pay conveniently through a phone. The popularity of mobile payments is increasing globally, and in many Asian countries, it is already the most popular payment method.
Mobile wallets use different technologies in the payment process, most frequently NFC (Near Field Communication). A mobile wallet (also called eWallet) stores payment information in an app installed on a mobile device. Apple Pay is an example that allows contactless payments on card terminals (using fingerprint authentication via the phone), in-app purchases, and payments on the internet. Mobile wallets also help to reduce shopping cart abandonment and increase conversion for shopping on mobile devices.
Google Pay and Samsung Pay are two other big mobile wallet contenders.
Cash on delivery
Fiat, or physical cash, is a payment method often used for pickup in-store and cash-on-delivery transactions. Paying with cash does come with several risks, such as no guarantee of an actual sale during delivery and theft.
Invoice (Purchase Order)
In B2B, it is relatively common for business customers to “pay” via purchase order. The customers need to be approved before paying with a purchase order is allowed. Setting up a credit limit is also a common practice. Merchants sometimes allow the prospects to place orders via credit card while their credit application is reviewed.
When a buyer places an order, he has a term window (usually Net 30, for 30 days, or Net 60, for 60 days) to pay the invoice.
Selecting Payment Methods
Here are criteria to consider when selecting payment methods your business needs to offer:
· Payment methods popular in your countries(s) of operations
· Payment methods popular with your target customer groups
· Types of product the store sells
· Risk of fraud
· Convenience (fewer steps to complete checkout)
Payment providers
Payment Service Providers – also referred to as payment gateways – provide merchants with a single integration that allows them to accept multiple payment methods. The abbreviation for the Payment Service Provider is PSP. Every Payment Service Provider has its number of connections and payment methods depending on the countries and regions they operate. Some Payment Service Providers focus on the local market while others operate globally.
Selecting Payment Provider
The chosen payment solution must satisfy both the needs of your business and your customers. It needs to support various payment methods, be convenient to use, protect from fraud, be compatible with your Ecommerce platform, and have reasonable fees.
Here is what you need to consider when choosing a PSP:
- Transaction fees, setup fees, contract duration
- Multicurrency support
- Supported countries
- Supported payment methods
- Additional features provided, for example, fraud detection, security, reports, merchant account
- Support of recurring billing
- Mobile payments
- Usability, white labeling
- 24×7 support
Recurring payments
Recurring payments are automatic payments that repeat according to a set schedule and are processed electronically. They are often used for memberships, subscriptions, and paying in installments for high-price purchases. See Subscription products and recurring prices.
Recurring payments are made either through direct bank deposits or as pre-authorized credit card payments.
As shown in the examples above, the customer needs to select a subscription product she is purchasing, duration of the contract, and billing frequency.
Here is how recurring payment works: (source Ebanx.com)
Payment in installments
Installment purchase is increasingly popular with online shoppers. Especially when it comes to larger shopping baskets, customers often prefer to pay off small installments. In Germany, a quarter of the largest online shops already offer installment payments. The ability to do so is a real competitive advantage.
For example, Otto.de provides an option to pay in installments and provides an Installment Calculator to help customers select the best option.
Here is how payment in installments works.
Gift Card
A gift card is both a product and a payment method. It is a smart card that allows the giver to charge it with the desired amount. Merchants will then enable a customer to split payment between a gift card and other payment methods.
The merchant should maintain the remaining Gift Card balance and display it to a customer in the My Account area. Gift cards help to attract new customers to the store and increase revenue.
Payment methods availability
A merchant needs to define conditions when different payment methods are allowed. Not all payment methods are supported in all channels or countries. The availability rule may depend on a customer group, store, cart context, or cart total. For example, a merchant can allow credit card payments when a cart total is larger than $100 and only in a German store or do not allow payments by an invoice for products in some categories.
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