There are many ways to pay for things online. From the perspective of an online shop, the abundance of methods may seem daunting. But multiple payment options also means greater convenience for your customers and more sales for your shop.
Let’s take a look at some forms of payment that eshops can implement, compare pricing for various payment gateways and other payment methods, and talk about some security concerns related to online transactions.
Forms of Payment for Ecommerce
Naturally, we must mention the three biggest forms of online payment that have been at the forefront of ecommerce since the beginning:
- Credit card
- Debit card
- Bank transfer
Paying by bank transfer or by credit card or debit card – pulling out the plastic, so to speak – is straightforward for customers. For online businesses, however, there are a variety of ways to accept these types of payment. The services that process credit card and bank card payments are referred to as payment gateways or gateway systems (see section below for more on this).
Besides the ‘classic’ payment methods, there are a number of other great payment options for ecommerce:
- Google Wallet
- Amazon Payments
- Intuit PaymentNetwork
- Trade-in (Amazon buys back certain products, for example)
Let’s start by taking a look at various payment gateways that shops can use to accept credit card, debit card, and bank transfers (eChecks), and then continue with a closer look at some less conventional – though quite compelling – options that can add choice and convenience to the checkout process.
Payment Gateways (and Merchant Accounts)
Gateway systems facilitate the processing of credit card and debit card data. Some (most notably PayPal) also support payments by bank transfer.
Merchant accounts temporarily hold funds from transactions before they are transferred to the merchant’s bank account. Together, they amount to an efficient way for online shops of any size to accept card and eCheck payments.
PayPal and Authorize.net are two of the most well-known and trusted ecommerce payment gateways, though many others are also available. Here is a quick overview of rates for PayPal, Authorize.net, and a few other contenders.
Generally speaking, you can expect a payment gateway to charge somewhere just south of 3 percent of the total transaction amount plus about 30 cents per successful transaction (the big standout here being Masterpass, but it’s still in early phases so pricing will presumably only be free for a short time).
PayPal is a trusted household name. Since many customers already have a PayPal account, it makes checkout simple and painless. On the downside, PayPal requires a redirect away from the eshop to complete payment.
An industry standard, Authorize.net accepts not only credit and debit cards but also eChecks and works with PayPal funds and even Apple Pay for payments within iOS 8 apps. It may not be the cheapest, but it is full-featured.
Highlighting the fact that they offer “the option to select from any of 15 languages and 26 currencies through the checkout process,” 2Checkout is all about global business. They offer account management apps for iOS and Android, and accept PayPal as well as credit cards and debit cards.
BluePlay lets eshops process credit cards, debit cards, and ACH direct debit payments. They support payment processing for a wide range of merchants, as well as point-of-sale solutions for physical retail stores.
PaySimple stresses their options for automatic billing and eCheck support for recurring payments. They promise a service that, as their name says, is ‘simple,’ which includes apps to let you view cash flow and other real-time data on mobile devices and tablets. They also offer a free trial, so you can test it out yourself before committing.
With a recognized name like Amazon your customers will be confident in making a purchase. On the other hand, the Amazon brand may distract from your own brand image that you’re trying to build with your unique eshop.
Stripe is the hipster of the bunch. “Built for developers,” it shows off its API libraries “in everything from Java to Go.” With a clean, customizable design, support for 100+ currencies, and simple integration with mobile, Stripe is looking pretty fashionable.
The biggest differences between Masterpass and other payment gateways is that it (currently) has no transaction fees, and that it requires that an eshop accept Mastercard in order to implement the service. Masterpass is essentially Mastercard’s way of trying to convince more shops to accept their cards, but with no fees at present and great brand recognition it may be worth a look.
Visa cards have been used online for ages, but Visa themselves only got into the game of processing online credit card payments in 2014 (note that Visa Checkout works with major credit cards, not just Visa cards). Visa Checkout has fewer features than PayPal, but does offer a simple pop-up window that avoids navigation away from the store’s site during the payment process.
Hosted versus Non-hosted Payment Gateways
Another consideration when it comes to payment gateways is whether to go with a hosted or non-hosted solution.
A hosted gateway means that customers are directed away from your site temporarily to complete payment (think PayPal), while non-hosted options are integrated directly into your site, meaning that the customer stays on your site during the whole payment process.
Both hosted and non-hosted gateways are widely used; one is not inherently better than the other. Here are a few pros and cons to consider:
- Less work to integrate initially
- Updates to gateway are independent of your site (simpler maintenance)
- Customer leaves your site temporarily
- Adds a layer of complexity and an extra page load or two to the checkout process
- Streamlined checkout process
- Customer stays on your site at all times
- Full control over the payment experience
- More work to integrate/ more hassles for IT
- More time-consuming to maintain
Other Payment Services
BitCoin made a splash in November 2013 when the price of 1 BTC temporarily spiked to nearly 1,000 USD! Today, BitCoins are hovering closer to the $240 mark. While some may still be wary of BitCoin’s long-term price stability, it is undeniably one of the cheapest ways of transferring payments around the globe at lightning speed.
Google Wallet makes it easy for customers to check out by using their Google+ login, but it doesn’t facilitate the actual processing of credit cards or other forms of payment. It streamlines the checkout process, but requires a traditional gateway service to work alongside.
Dwolla’s claim to fame is its no percentage fee and low rates. In fact, Dwolla only charges $0.25 per transaction over $10, with all smaller transactions being processed for free! It transfers money directly from and to bank accounts, meaning no cards accepted here. While it may not have much name recognition at present, Dwolla makes up for it by offering great rates for online businesses.
Probably Intuit’s biggest attraction is its simple integration with QuickBooks for streamlined invoicing and accounting. Like Dwolla, Intuit transfers money directly to the business’s bank account. It does accept credit card payments, but at a fairly high rate of 3.25%.
Pricing Comparison of Other Payment Services
Trade-In: Non-Monetary Payments for Non-Traditional Shopping
Many people trade in their used car when they buy a new one, trade in video games when they’re done, or trade in an old iPhone to Apple for a discount on the latest model. Trade-ins can also be used in ecommerce to partially or fully pay for the costs of new products.
This option involves more creativity on the part of the eshop, but could prove a rather unique and compelling option for customers. What if you could buy a new book by sending back two or three used ones, or exchange a combination of items for what’s in your shopping cart?
Trade-ins involve shipping costs and processing costs for your business, so make sure to take that into account if you’re considering accepting non-monetary payments.
Data security is a hot topic these days, especially when it comes to credit cards and banking. Target experienced a very high-profile theft of customer credit card data in 2013, reminding us that even the big guys can lapse when it comes to their data security.
All payment processors claim that they use top-notch security. As a small or medium-sized ecommerce shop, how can you make sure that your customer’s sensitive information is handled properly?
Security for Online Card Transactions
In the US, the PCI Security Standards Council has established guidelines for secure processing of credit card data that “[provide] an actionable framework for developing a robust payment card data security process — including prevention, detection and appropriate reaction to security incidents.”
When choosing a payment gateway, make sure that they are adhering to the industry standards. PCI DSS certification is required for all payment gateways that handle Visa and Mastercard, and all respectable credit card processors will indicate that they are in compliance.
BitCoin’s security is a bit more complicated. While BitCoin transactions themselves (the transfer from one wallet to another) are assumed to be secure, there is risk involved with holding BitCoin accounts.
Like your physical wallet, BitCoins actually live in a digital wallet on a particular computer or device (which may be managed online, but still exists on a physical hard drive somewhere). If your hard drive fails and you don’t have a backup, or if you lose your wallet password, or if something else unfortunate happens to your hardware on the device(s) where BitCoins are stored, you’re really out of luck.
Even BitCoins held in online wallets can (and have in the past) been hacked, resulting in the permanent loss of BitCoins from people’s accounts. There is no way to recover lost BitCoins. Therefore, BitCoin wallets should be treated like real cash-filled wallets – that is, with care and attention, being mindful of their security at all times.
Google Wallet Security
Since Google Wallet is about easy log-in and not about actually processing transactions, the only security concern is that of the customer’s Google account. Any online account should have a secure password, especially those tied to online purchases.
Dwolla uses 128-bit SSL encryption. Transactions through Dwolla only require the transmission of a user’s Dwolla ID, email, or phone number, leading Dwolla to claim that: “Unlike paper checks or credit card transactions, your financial information is not transmitted when making a purchase, limiting the threat of possible identity theft.”
Boasting that “Your data resides on a server that is heavily guarded both physically and electronically,” Dwolla does inspire confidence with the presentation when visiting their well-designed website.
It is still difficult to independently gauge just how secure a service like Dwolla really is, but it’s already trusted by thousands of businesses and by all signs appears to be a solid choice.
With so many payment options available it may seem difficult to decide what’s best for you and your online shop. Take some time to check out the options, but most importantly, pick several!
Increasing the number of available payment options increases conversion rates and reduces the quantity of abandoned carts when customers love your product but leave at the last moment in the checkout lane.
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