A Merchant’s Guide to Online Payment Methods

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To say consumers have warmed up to online payment methods is an understatement. Last year’s e-Commerce figures alone make a solid case for this rapidly-evolving market.

In 2017, consumers spent $453.46 billion online for retail purchases alone, which was a 16% increase from the year prior. That doesn’t account for all of the additional online payments consumers are making on a daily basis. The vast volume of online transactions has paved way for the diverse field of online payment methods merchants have access to today.

Too many options, however, can overwhelm even the most experienced of e-Commerce merchants. We’re here to help alleviate that unnecessary stress and help you navigate the world of online payment methods.\


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How Online Payment Methods are Processed

Online business transactions are et to hit a staggering $523 billion by 2020, according to research from Forrester. Thanks to innovation in online payment processing that allows for faster, automated methods that streamline revenue flows for merchants. But to get to point B, you must understand how point A begins.

A customer selects how they want to pay online. This can be through credit/debit cards or other more sophisticated options such as digital payment and mobile payment methods. Once a customer chooses how they want to pay, and provides the necessary credentials, the approval process is initiated by the card-issuing bank of the customer. This process is done within seconds and allows for a smooth transaction process.

Although it only takes a few seconds on the front end to process an online payment method, the backend is a bit more complex. This involves a merchant account, a payment gateway, a payment provider and a payment processor. Those four components are necessary for accepting payments online and properly managing the use of online payment methods.

Online payment methods allow for merchants to integrate various technologies that help them reconcile payments in near real-time across e-Commerce channels. This also helps reconcile payments between consumers and businesses in a timely manner. Thanks to innovative technology in the online payment processing ecosystem, merchants today are privy to a host of solutions that can help streamline payments.


Choosing the Right Online Payment Methods for Your Business

Understanding how online payments work and choosing which methods work for your business go hand-in-hand. You don’t need to understand the nitty-gritty of how online payments work, but you should understand how they can benefit your business’ revenue. This starts by knowing how your customers prefer to interact and most importantly, their payment preferences.

Predicting how customers want to pay is a bit of a guessing game. With so many online payment methods available in the market today, merchants want to ensure they’re tailoring their payment options to best attract the most amount of customers. For example, if your main customer base is interacting with and shopping on mobile devices, it’s critical to have mobile-friendly payment methods.

Knowing which online payment methods are best for your business and customer comes down to flexibility and usability. Customers should be able to choose from a number of methods, including both traditional credit and innovative mobile/digital payment options. Whatever options your business chooses, they should enable a better, faster, and more secure shopping experience.

Online payment methods should streamline the customer shopping journey, help guide the customer through a quicker checkout and provide your business with peace of mind that their credentials are secure. Luckily, with the right payment processing relationships, those are all built-in features that come standard with online payment integration.

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Online Payment Methods to Power a Better Checkout Experience

A better checkout experience is an extension of offering the right online payment methods. Industry data shows that 28% of U.S. online shoppers have abandoned an order in the past quarter as a result of “too long/complicated checkout process”. The customer journey isn’t just about how a customer shops across your e-Commerce site; the journey is about how they navigate between browsing, buying, and checkout. Each of those experiences must flow seamlessly in order to encourage conversions.

Offering a variety of online payment methods also means ensuring a customer’s chosen payment method is fully integrated into the checkout experience. Whether it be online, in-app or via a mobile website, online payment methods should help consumers complete their purchase without hesitation. Choosing methods that eliminate unnecessary personal credentials is one way merchants can leverage payment options to ease checkout friction that can lead to cart abandonment.

The right online payment methods must also help the customer navigate between various channels without re-directing them to too many third-party payment pages. It’s important for businesses to balance what type of online payment methods they offer as some may discourage customers from completing their purchase. Instead, merchants should focus on selecting methods that deliver a consistent and familiar payment experience, regardless of what device they’re shopping and paying through. Redirecting online payments can reduce the amount of control your business has over the customer payment experience, which can affect how much they’re willing to engage with your business.


Avoiding Risk Pitfalls with Online Payment Methods

As hinted above, the biggest hurdle with online payment methods is their propensity to cause too many obstacles in the payment process. Unlike a payment made in person, which is typically done using a simple point-of-sale method and is completed in a matter of seconds, online payment methods can complicate the process a bit. This is why having the right payment processing partner is so critical; enabling the right type of experience can make or break your ability to drive conversions.

Business must also consider the risks associated with online payment methods. Obviously, accepting any type of payment adds a layer of risk. Thanks to an influx of data breaches and the rise of sophisticated fraudster methods that have permeated the online payment ecosystem, this has made e-Commerce merchants particularly susceptible to fraud. Luckily, advancements in data protection and merchant payment processing has helped alleviate many of these risks.

The key to protecting yourself as a business that processes online payments is having partnerships with payment providers that have security at top of mind. Keywords to look for are end-to-end encryption (E2E), tokenization and PCI compliance. Those three core concepts are what will make your ability to process online payment methods smoothly and securely.  

Increasingly, having security features are no longer a perk but an expectation for processing online payments. In order to fully protect your customers’ personal credentials, better payment security and protocols are required. Luckily for businesses, these are becoming standard with each new online payment method introduced. Online payment processing providers are also equipping themselves with integration abilities to ensure merchants benefit from these industry advancements.

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The True Cost of Online Payment Methods

Before knowing which online payment methods are best for you and your business, it’s important to consider the costs and benefits of each option. This includes the technical integration, software and hardware fees, and any recurring monthly payments. Online payment methods can transform your business’ e-Commerce experience, but it can also come with a hefty price tag if you’re not paying attention.

The trick to avoiding any costly pitfalls with integrating online payment methods is finding a partner that values transparency in how they price out their services for managing your online payment methods. Just as your customers expect you to be straightforward about price, the same should ring true with your online payment processing partners. There can be additional support costs that come with onboarding certain methods or solutions, including transaction monitoring, payment reconciliation and customer support with newly added online payment methods.

Each payment method also has its own fees associated with each transaction. Credit and debit cards are processed differently, as are mobile payments like Apple Pay, Samsung Pay, and Google Pay. Other online payment methods like PayPal and Stripe also have their own fees. It’s important for businesses to read the terms and agreements with each of these services and ensure they are being merged with your existing payment processing needs. Consider what the best payment options are for your business and your customers and which help maintain solid margins so that payments don’t cut into your ability to grow revenues as sales increase.

There is no silver-bullet solution to telling business what type of online payment methods are best for them. Selecting the right methods comes down to the type of business you’re running, the demographics of your core customer and the technology that best integrates into your business model. The trick to making this all work together? Partnerships.


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Anna Kragie is a content contributor for Payline Data. She previously wrote for PYMNTS.com, as a Sr. Content Producer, where she focused on financial services and payments innovation, fraud and security, emerging payments, and FinTech news, research and thought-leadership content across the payments industry.

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