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Payment methods in e-commerce: The importance
When it comes to payment processing, a generational divide has emerged in recent years. While younger people increasingly use their mobile apps to transfer money and settle debts, older generations still prefer classic bank transfers.
At the same time, the market for digital payment methods remains competitive, with various service providers striving to develop optimal payment methods. Opinions on the various options remain divided.
For e-commerce providers, this has direct consequences. Offering different payment options is essentially mandatory; there is no one-size-fits-all solution that unites all customer groups. Even in times when PayPal covers a large part of the market, it is not enough to offer only PayPal or one additional payment method.
Customer requirements
The selection of payment methods significantly impacts the perception of the shop and the ease of the ordering process from the customer's perspective. Since it involves money, which is naturally a sensitive issue, a certain level of trust is necessary to finalize the purchase. This aspect has two dimensions:
- Trust in the shop itself: Skeptical internet users who visit a small online shop for the first time and consider making a purchase might not prefer advance payment methods. The money is gone initially, and there may be uncertainty about whether or how quickly the provider will deliver the goods.
- Trust in the payment method: Especially significant in Germany, even credit cards have not fully gained acceptance. An unknown payment provider with an unfamiliar name is often not the first choice for entrusting money.
Although such fears are generally unfounded, especially when shopping on a trusted site with carefully selected payment methods, they are sometimes present. Therefore, it is essential to offer highly trusted services that are well-known to most customers.
Buyer protection is the foundation of PayPal
The fundamental security of the method is a crucial factor. It is not only about the security of data and funds but also about buyer protection. Except for purchases on account and cash on delivery, which have become rare, the buyer bears the entire financial risk. The focus on buyer protection is a key reason for PayPal's success.
Simplicity is another aspect. Regular customers, in particular, prefer a straightforward purchasing process. In highly trusted shops, payment information for direct debit might be stored and automatically retrieved for future purchases. Similarly, impulse purchases, such as those from a price comparison site to a previously unknown shop, should face minimal obstacles.
Why offer many different methods?
Both security and ease of use are of great importance to users. The customer is king, and one should offer the options they demand and expect. However, this is not the only reason for recommending a wide range of options. Among other things, sellers are legally required to offer at least one additional free payment method if a method (such as cash on delivery) comes with an additional fee. This additional option must also be widespread: PayPal or bank transfer would be suitable examples.
Another issue: not every type of product or service can be handled with all payment methods by all providers. Subscription costs or ongoing memberships, which require regular payments, should often be debited automatically for convenience (unless terminated on time). "Recurring payments" are popular in many industries.
However, this is not possible with all methods: some do not allow such transactions because the payment source coverage is not guaranteed. For example, with PayPal, a credit card or checking account must be linked. Automatic debits from wallet balances are not permitted. A shop specializing in various services, some of which require special conditions, must offer both straightforward payment methods for one-time purchases and those suitable for subscriptions.
Variety has its downsides
As a shop operator, one might be tempted to offer as many different payment services as possible. However, this is usually not a good idea. Choosing wisely to allow maximum flexibility without being overwhelming is a challenge. Several factors must be considered:
- Economics: The top priority that affects all other aspects. Each transaction costs money, which providers charge the shop operator (fees can theoretically be passed on to customers, but this is usually not a good idea). Not every payment method is suitable for every offer.
- Customer preferences: Too much choice can be confusing. Depending on the target group and type of products, the optimal services must be found. For example, services targeting younger customers, such as video games, often use PaySafeCard, which allows digital payments with cash. Recently, ease of use on mobile devices has become more important.
- Additional costs: Besides transaction fees, other costs arise from using multiple payment providers. Integration and maintenance costs for the digital infrastructure increase with more functions offered. Some payment methods also incur additional fees for chargebacks.
- Customer support: A wide range of payment methods affects other areas of the business, such as customer service. More different services mean more various issues for customer service to handle, especially for payment problems or refunds. This can harm the productivity of the service hotline.
- Organizational effort: More options mean managing more licenses, partnerships, and a more complex infrastructure.
The goal is to minimize the potential problems caused by organizational chaos while offering enough different payment methods to satisfy most customers. Clear structuring and indications of available payment methods and their details are a good idea. This keeps customers informed about their choices and how they work.
Solution: Payment Service Provider
Partnerships with payment service providers are a good way to minimize organizational effort and costs. These providers offer their services to merchants and manage all payment methods and transactions. The only expense for merchants is the regular fees charged by the payment service provider.
Tip: Key figures analysis
Professional shop systems should include this function: measuring the abandonment rate and analyzing potential reasons can highlight problematic payment methods. However, caution is advised: shopping cart abandonments can have various reasons, and reducing them to zero is impossible. Some customers never intend to buy and still add items to the cart. If purchase attempts are frequently abandoned after selecting a specific payment method, it is clear there is either a problem with the method itself or its implementation on the shop page. Even one extra click required by a payment method can demotivate impatient customers.
Sources:
- https://www.trustedshops.de/guetesiegel/
- https://www.pcwelt.de/news/Paypal-aendert-seine-AGB-zum-Kaeuferschutz-10583328.html
- https://paylobby.de/guides-ubersicht/online-payment/mikrotransaktionen-im-gaming
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