Strategic planning mistakes in the portfolio of payment methods very often leads to a decline in the turnover of an online shop. What is important when choosing online payment methods? And how can merchants secure the most profitable options?
Online merchants should select their payment methods based on those which are as easy as possible for their customers. With regards to efficiency, merchants can avoid several problems and reduce economic risks provided they ensure this is their core objective from the very beginning. Several factors can be crucial for a merchant’s success.
1. The right mix of payment methods
The range of payment methods offered by an online shop plays a very important role in the customers’ purchasing decision. The more online payment methods offered, the more likely that every customer will be able to find their preferred option. At the same time, this also increases the probability of a purchase transaction. According to the study, “Internet Payments from consumer's perspective in Germany, Austria and Switzerland” by the ECC of Köln and the University of Aschaffenburg, when shopping online, if the customers’ favorite payment method hasn’t been offered, nearly 24% of all online purchases are simply abandoned.
A single preferred payment method from a merchant’s point of view does not exist either. There is a large range of criteria to be met, including high payment security, low cost, low integration expenses and a positive influence on the quota of returns. Unsurprisingly, no one method comes out on top for all of these. As a result, lots of merchants offer a mixture of different payments. According to the current EHI study “E-Commerce Market in Germany 2015,” on average, online consumers of the Top 1000 online shops are able to choose between 6.6 different payments options.
Purchase on account: 79% of German online consumers prefer to purchase on account. This payment method convinces customers of the security and reliability of their payment and as such is considered to be the favorite method of online payments. In the UK, this payment is more prevalent amongst business to business purchases, whereas the majority of consumers pay directly upon purchase.
Advanced payment: Whereas payment in advance only convinces about 12% of online consumers, it is more popular with merchants – indeed it features as one of the top three payment methods from the merchants’ perspective. This process costs very little to integrate and, as it fulfills the need for security and predictability, has a positive effect on the quota of returns.
Wallets and online banking solutions: Payment methods such as wallets and online banking solutions, which have grown in popularity with e-commerce, are popular with both customers and merchants. A well-recognised version of this is PayPal, which is often favored amongst consumers due to the ease of payment.
Credit card: Credit card payment is equally popular with merchants and consumers. This payment method is offered in around 86% of online shops, mainly due to the international acceptance of credit card brands and security aspects. Among consumers, about 35% prefer this payment method.
Direct debit payment/Debit: Direct debit payment ranks third in the most popular payment methods after purchase on account and PayPal.
However, this method does present a risk to merchants, as the customer can back-charge the purchase amount after they have received the goods. Despite this, 40% of merchants offer this payment mode in their online shops due to strong consumer demand.
When selecting their payment portfolio, merchants should always keep in mind the reason and requirements for a payment. The reason of a payment refers to the nature of the individual online shop, whether it is a specialized, boutique outlet or a more mainstream one. The requirements for the payment procedure depend on the individual business goals of the merchant. For example, if customers come from all over the world, then international payment possibilities should also be available.
2. The Right Payment Service Provider
An experienced Payment Service Provider (PSP) can advise online merchants on their individual customer needs. It can offer systems with algorithms that are capable of analyzing the master data of a customer (age, origin and purchase history) and determine the best payment methods. At the same time, it can offer the full range of solutions from a single source and prepare the merchant’s future requirements. Particular importance is given to the interface compatibility of individual payment methods as well as high-frequency periods such as before Christmas.
In addition, a PSP can offer reliable risk management. It provides a list of “black sheep" with specific names or IP addresses. In the case of a purchase from this category of people, the algorithm automatically shows the most secure payment methods for the merchants.
Moreover, in accordance with the Payment Card Industry Data Security Standard (PCI DSS Standard) companies holding confidential data of card holders need to be certified. This can be a very expensive process for the merchant. However, a PSP can facilitate this costly process of certification as it is sufficient if the PSP itself holds the certificate. The merchant can then simply use the PSP’s “Secure Card Data Service” – the card data are stored at the PSP, creating an alias which the merchant then receives.
Individual solutions for different needs
The payment solutions a merchant should use depend on its individual needs. If a vendor sells products that need to be explained, sales via telephone agents followed by payment directly on the phone is particularly appropriate. Small or medium-sized online shops with a mixed product portfolio should use a standard E-commerce solution, whereas bigger merchants with subsidiaries using an Enterprise Resource Planning system should focus on a comprehensive business solution.
Online merchants should think about payments thoroughly. Only with a broad payment portfolio which is tailored to the customers, can overall profitability be improved. A proper, individual consultancy by a PSP can help in the design of an online shop and can pay dividends in the long-term.