Online payment systems for retailers

The selection of suitable payment systems is essential to be successful in e-commerce. Online retailers’ conversion rate will be directly affected by whether they integrated the right payment methods into the checkout. Many buyers cancel their purchase if their preferred payment method is not available. Therefore, online payment systems are an important factor for the cash flow. Each online shop has different communication channels, target groups and sales countries, as well as different sales volumes. All these aspects are part of the selection of payment systems. What online payment systems are there and how do they differ? We provide a brief overview of direct debit, invoice purchase and credit card use in e-commerce.

Direct debit, also known as bank collection, is a popular method of payment in online shopping and is particularly suitable for subscription and installment payments. In contrast to most other types of payment, the beneficiary of the payment is active - not the payer. The merchant instructs his bank to debit a corresponding amount from the account of the buyer.

As a rule, the process of paying by direct debit is as follows: The customer enters his account data in the checkout of the online shop. The trader evaluates the entry of the account data (and the selection of the direct debit payment) as a debit authorization. The dealer then uses the customer's bank account to order the bank to collect the required amount. After the bank of the dealer has registered the collection of the amount with the customer bank, the bank of the customer issues the corresponding credit note. If no formal aspects get in the way, the payment is carried out.

An important advantage lies in the ease of debiting. The dealer is not dependent on the transfer of the customer. He takes over the transaction process and therefore suffer from no deferred sales. In addition, the processing of the order and the dispatch of the goods is accelerated. For the buyer, this again has the advantage of being effortless. After the payment data has been deposited by the customer at the online shop, the merchant will settle all due debits. The customer only must ensure that the account is adequately covered. In some cases, although bank debts go beyond credit balances, banks are only able to do so with good credit ratings, and even this is not guaranteed. Furthermore, the customer has the possibility to reverse a direct debit. The bank is forced to book back the amount within a time limit. For both parties, the comparatively low fees that are payable by direct debit are advantageous.

The risk of misuse is not to be underestimated in the payment by direct debit. Account statements should always be checked so that unauthorized debits can be rejected immediately. Once account information gets in the wrong hands, the owner of the account has no way to prevent the payments in advance. However, he can undo the direct debit at any time.

Many newspaper and streaming subscriptions can be paid by direct debit. Membership to, for example, sports clubs often prefer with this payment method. In general, the method is popular with retailers, since it can be calculated with open payment receipts. The internal calculation can be facilitated by means of a certain key date, which is to be expected with incoming payments. For the customer the argument of the calculation also applies, as well as the convenience.

Invoice purchase is especially popular in ticketing and fashion the payment method.

After the customer has selected payment by invoice, he receives an invoice with a payment request. Once the order has been delivered to the customer, the invoice must be settled by bank transfer - either directly or within a specified timeframe.

For online merchants, offering invoice purchase is attractive because it greatly increases the conversion. The abandoned purchase rate drops as soon as the customer has the possibility to choose to pay by invoice at checkout. This has several reasons: First, no liquidity needs to be provided at the time of the order (the account is therefore spared). On the other hand, products can be sent back without the invoice being paid in advance, should the customer be unsatisfied. No sensitive bank or credit card information must be provided on the Internet, avoiding potential fraud risks.

A major problem lies in payment defaults and delays. Dealers must often struggle with reminders that cost them time and money. Furthermore, there is a high potential for fraud, for example by addressing the wrong address. It is difficult for traders to get their money back.

Due to the high international acceptance and security, the credit card is always a relevant payment for online merchants.

Worldwide, the credit card is the most common payment method in e-commerce. This means that traders are often forced to offer this method of payment (e.g. Visa or MasterCard) in order not to lose clients to their competitors. Moreover, credit card payments are very secure (through, among others, passwords protection and TAN numbers). The 3D-Secure process also contributes to the safety of traders and customers. In this payment procedure, traders can also assume that their customer is not a minor, as only adults can have a credit card.

Despite many advantages, the credit card also has disadvantages. For example, the 3D Secure method is important for high security, but it negatively affects the conversion rate. The prolonged purchase process often discourages customers, who won’t complete the transaction. Additionally, certain industries are difficult to cover with credit cards. These include, among others, the adult entertainment, since customers often want to enjoy anonymity, which is not given with the credit card. In addition, customers can request a chargeback in the 90 days following payment. In the case of a micropayment, this entails fees for the dealer, which are well above the purchase price.

For new online shops, it is recommended to integrate at least two payment systems. It is generally necessary to include a classical (e.g., credit card, invoice, pre-payment or direct debit) as well as a digital (e.g., e-wallets, online transfer) payment method. Monitoring the competition and, if necessary, adopt similar payment methods can be a very helpful strategy. Once the merchant has decided to use a payment system, this does not mean that it has to stay that way. Purchasing behavior and customer preferences can change continuously, and so should the desired payment methods.

Another approach is to start the business with several types of payment. In the long term, the most popular payment methods become clear and the dealer can rearrange accordingly.