Our survey of the different payment systems with regard to e-commerce continues. In the second and final part of “Payment Methods in Online Shops — Part 1: A Forest Full of Trees”, we explore the two remaining categories: “Payment with safeguards” and “Payment with virtual wallet”. These two categories have one thing in common: external service providers ensure that transactions are properly processed.
Category 2: Payment with safeguards
The “Payment with safeguards” category includes all payment methods which do not require customers to register with a payment service provider. Moreover, merchants and customers alike can be certain that payments will be processed securely and sensitive account information handled confidentially. This category thus encompasses all payment service providers which document and monitor the digital handshake between merchant and customer.
Types of “Payment with safeguards” include paying via COD and payment providers which facilitate payments by various methods which require no registration. Depending on the country and hosting provider in question, in ePages 6 you can select from the following payment providers: Payment Network (sofortüberweisung.de), Moneybookers, Saferpay, ExperCash, RBS WorldPay, Authorize.Net, Credit Mutuel Banque, HSBC, PayPoint.net, Sage Pay, ServiRed and SIPS Atos (Atos Worldline). They all offer customers — without additional registration — various payment methods such as credit-card payment, giropay (Germany), iDEAL (The Netherlands,) CyberMUT (France) or 4B (Spain).
In the case of payment via COD, the local postal service guarantees that the payment is processed on delivery. The advantage for not only merchants but also customers: both parties can use this service without having to sign a rigid contract with a service provider or to provide bank-account information.
As a rule, there are two ways to pay via payment providers: by credit card or by direct transfer.
Payment by credit card
Moneybookers, Saferpay, ExperCash, RBS WorldPay, Authorize.Net, HSBC, PayPoint.net, Sage Pay, ServiRed and SIPS Atos (Atos Worldline) are the principal payment providers at your disposal when you set up your ePages shop. All of them offer payment methods for at least one credit card, if not various credit cards.
For all of them, set-up in the shop is more or less the same: the merchant must open a fee-based merchant’s account with the payment provider prior to use. The merchant can then enter the registration data they receive in their ePages shop and offer to customers the provider’s services.
Customers do not need a special customer account for each individual payment provider. They simply need to enter their credit-card information to pay for an order. In addition, their credit-card information is secure because it is submitted not to the merchant but rather to the payment provider. The latter verifies the card’s information, obtains the necessary sum from the customer’s credit-card account, and transfers this sum to the merchant.
The reliance on a payment provider in an ePages shop benefits both parties. Merchants thus reduce the risk of financial losses. Payment issues, caused perhaps by insufficient account funds, are addressed by the payment provider — which, as per the merchant’s request, assumes responsibility for collecting any outstanding payments. Merchants also benefit from the trust which customers place in these established payment providers.
Customers enjoy advantages, too. Because money is transferred quickly, their orders are shipped at once; furthermore, their credit-card information is handled very securely.
Payment by direct transfer
As for the second method of payment which online merchants can offer their customers via various payment providers such as Moneybookers, SaferPay or ExperCash, the payment process occurs in a different manner: money is directly transferred by the customer. Therefor the providers utilise country-specific payment standards such as giropay (Germany), iDEAL (The Netherlands,) CyberMUT (France) or 4B (Spain).
Only the merchant must create a fee-based merchant’s account concerning such services. Customers do not require any special registration. After a customer clicks on “Pay” during the order process, they see a payment page. The payment provider has specified in advance the purpose of payment in accordance with the shop’s requirements and contacts the customer’s bank. The bank processes the request for funds by requesting a Transaction Authentication Number (TAN), which the customer must enter. The bank then completes the transfer and notifies the payment provider, which in turn provides confirmation of the aforementioned to the merchant. The latter can then prepare the order to be shipped.
This is advantageous for the merchant in that, in one fell swoop, it can ensure secure payment via multiple banks simply by partnering with a payment provider. Payments are simply part of the purchasing process and are documented by the payment provider. The laborious tracking of payments becomes a thing of the past — even though payments are done via bank transfer. Merchants also benefit from the considerable trust which customers place in these established payment providers and in the standardised payment methods.
And customers appreciate having to share their bank-account information with the payment provider only and not the merchant. The use of a TAN ensures that only that one payment will be processed – a TAN is valid for just one transaction.
Category 3: Payment with virtual wallet
The “Payment with virtual wallet” category includes all providers which require that a customer has a customer’s account to facilitate payments. This means that customers do not need to use a credit card, because the payment provider advances money for all orders and ultimately debits the sums from purchasers’ accounts. The payment provider thus pledges to pay all transaction sums. Payment providers in this category serve, in a sense, as providers of a digital credit card or a virtual wallet.
The key providers of virtual wallets such as PayPal enjoy great trust among customers due to their reputation for online security. This is good for merchants: they can increase conversion rates in their shops by partnering with such service providers.
Merchants and buyers alike benefit because they can rest assured that their transactions will be executed via a secure payment process; moreover, the laborious tracking of payments becomes unnecessary. Orders can thus be shipped at once.
Customers must register with various payment providers, however, since different shops partner with different providers. This often frustrates customers, even though customer accounts tend to be free of charge.
Problematic for merchants: different payment providers enjoy different levels of popularity among various target groups. It can thus be necessary for merchants to create numerous fee-based merchant accounts in order to accommodate every target group.
Payment providers which require a customer account and are offered in ePages 6 are PayPal, Moneybookers, ClickandBuy, T-Pay and Google Checkout.
Part II: The Agony of Choosing
Categorising various payment methods helps merchants choose appropriate methods and providers for their shops. Depending on the target groups in question, countries to which purchases are shipped and the respective goods sold, it can make sense to allow various methods of payment.
In the second part of our series, entitled “Payment Methods in Online Shops II: The Agony of Choosing”, we will let you know what you should pay close attention to when choosing and how different payment methods can have different effects on your shop’s conversion rate.
We will publish the second part next week in the ePages Blog.
Volker Schwarz 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.