Payment Systems in Online Shops II: The Agony of Choosing

by Volker Schwarz, 07.10.09

A customer walks into your shop. As the owner of a brick-and-mortar store, your mission is simple. The only question you need to concern yourself with in this moment is: “How can I persuade this customer to spend money here?” But this same task is more difficult for you as an online merchant. The question you must be able to answer is: “Precisely what form of payment might this customer use?” After all, the customer can and will purchase something in your shop only if you allow them to pay as they wish. We will explore this issue in Part Two of our “Payment Systems in Online Shops” series.

There are many different payment methods online. This is so because different external systems are used to ensure that every single transaction is handled properly. In Part One of this series, “Payment Systems in Online Shops: A Forest Full of Trees”, we sought to clarify matters and to identify the advantages and disadvantages of various payment systems. We will now take a peek inside your customers’ heads.


Three theories about your customers

1.    Your customers are cautious

Please have no illusions about it: the vast majority of customers who enter your online shop will leave it empty-handed. Conversion rates of 3 to 6 percent are the rule rather than the praiseworthy exception in online business. Over 90 percent of potential customers thus ultimately leave without making a purchase. One reason: insufficient trust in you as a merchant. If a customer does not know you, then they are unlikely to take a leap of faith and blindly trust you.

The “E-Commerce Survey Project” (in German only: “Projekt E-Commerce-Leitfaden”) by ibiResearch examined the impact of various payment methods on sales. Customers were explicitly asked about their willingness to purchase via various payment methods. One key insight: customers dislike paying in advance for services which have not yet been performed — particularly if nobody guarantees that the order will be handled properly. If pre-paying is the only option, for example, then nearly 80 percent of the survey’s respondents would leave the shop and search for a different online shop. Astonishingly, the cost of items in the shopping basket plays little role in the decision-making process; nor is it especially relevant that three quarters of the respondents have pre-paid for an online purchase at some point.

If a merchant also offers payment via bill, then the percentage of potential customers who prematurely terminate a visit to an online shop sinks from 80 to 10 percent. Very few people under these circumstances would forgo an opportunity to take a look at the goods before paying.

All remaining payment methods have a less significant impact on the percentage of people who leave an online shop without making a purchase. Assuming that some 80 percent of visitors to a given online shop would otherwise leave without buying anything, this figure can be cut in half by offering the option of paying via credit card, payment service provider or direct debit. Offering a variety of payment methods further reduces the percentage.


2.    Your customers are country-specific

No merchant should apply the same strategy to Germans, Americans and the French. Customers from different countries tend to prefer certain payment systems. This does not exactly make it easier for a merchant to administer a shop, provided that they wish to appeal to as many customers as possible.

A few examples will illustrate this point. If you primarily sell to German customers, then you will likely have to offer payment via bill if you hope to reduce the percentage of people who depart without buying.

If your customers tend to be in the United States, on the other hand, then it is a different matter altogether. Payment via credit card is namely extremely common in the USA. Because so many people in the United States have credit cards, almost 90 percent of all online transactions are paid for by credit card.

In the Netherlands, by contrast, a majority of online purchases are processed via iDEAL, similar to Germany’s giropay; in France, the "Carte Bleue" is indispensable. Moneybookers, a payment service provider, offers a good overview of country-specific methods of payment:


3.    Your customers are unique

Your target group and therefore your customers’ predominant method of payment depend on the products you sell online. It is essential that you, as an online merchant, make the right decision in this regard.
Let us say, for example, that your online shop sells computer games and console games — and thus appeals to a relatively young target group. Because many of your potential customers do not (yet) have a credit card, you must offer them an alternative method of payment. If you sell ultra-premium wines online, then your customers will want to pay with credit cards for a higher percentage of purchases.


An Unsatisfactory Conclusion

Unfortunately, we cannot provide any universally applicable guidelines concerning the selection of ideal payment methods for your online shop, as decisions must be made on a case-by-case basis in light of situationally specific circumstances.

In conclusion, two pieces of advice:


1.    Focus on your bottom line.

Closely examine your customers’ purchases and decide which payment methods you can perhaps do without. Calculate the costs associated with different payment providers and estimate the impact of no longer partnering with a given provider.

After all, it is not necessarily sensible to offer your customers every available method of payment. The E-Commerce Survey Project provides an impressive model calculation with regard to this very topic. In this case study, it is true that the shop which uncompromisingly focuses on sales is indeed the most successful at first glance. Yet this same shop ultimately earns less net income, due to non-payments, than a merchant which grosses less revenue yet does so exclusively via payments in advance. You can access this revealing case study (in German only) at:


2.    Electronic payments are your key to eBay

If you want to sell your products on eBay, you must use an electronic method for transactions — be it PayPal, Moneybookers or payment by credit card. Neither payment via bill nor pre-payment will suffice. This has been the case since eBay implemented more stringent payment requirements for commercial merchants in August 2008. As a result, commercial merchants must offer customers at least one electronic method of payment in the case of auctions or Buy It Now on eBay. This rule does not apply to a handful of special categories of products, such as vehicles, boats and real estate. The online auction house took this step to enhance security for customers while bolstering its own method of payment, PayPal.

Details on this matter can be found here:

About the author

studied German, History and Politics at the Ruhr-Universität Bochum. From 2004 to 2009 he worked as a freelancer for several marketing and communications companies in Hamburg, including e-commerce companies. Between August 2009 and December 2011, he worked as an online editor at ePages .

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  1. 05.12.2009

    lets discuss about ecommerce usa.In the U.S, every city, county and state has their own separate sales tax with differing rates, limits and deadlines. This mean ecommerce merchants who sell their products or services in the U.S. could therefore be subject to all of these taxing districts. So how are online merchants able to collect their payments of sales tax with the varying sales taxes?

  2. 05.12.2009

    This is about online payment.There is a massive change underway in the mobile media market as it becomes unshackled from the operators’ portals that have dominated it for a decade, all without having made any significant inroads into the content use of mobile users. The new capped data packages, fuelled by further competition, will see a total revamp of the mobile media market. It will no longer be based on portals but on direct services by content and services providers via open source phones and mobile-friendly Internet-based services. The next step is the continued emergence of m-commerce and in particular m-payment services. 

  3. 14.02.2011

    This is an awesome resource. Thanks so much for putting it together in such a well organized and complete manner.
    Nicely done.

  4. 17.07.2013


    This is indeed a very interesting and complete article. Business owners often neglect to analyze their customers’ payment preferences and they are wrong. For instance, like said in the article young people do not all have the possibility to pay via credit card or on the contrary most of grown-ups will prefer paying with their credit card because it is easier and faster. According to countries, habits of payment are also different, even inside Europe. For instance in France people like to pay directly with their debit card when they buy, on the contrary Germans prefer paying via bank transfers most of the time. It is true that online payments are more used in the USA. Again thank you for the great article, it is going to help a lot of business owners.

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