An electronic payment system is a way to process payments electronically using credit cards, ACH payments, and mobile wallets instead of cash or checks. It’s a quick and efficient method for online transactions, benefiting both customers and retailers.
In the following section, we’ll look at electronic payments in more detail and explore their potential benefits for businesses.
What are Electronic Payments?
Electronic payments enable transactions and bill payments to be made online or through electronic means, eliminating the need for physical checks or cash. Popular electronic payment methods include credit cards, debit cards, virtual cards, and ACH (direct deposit, direct debit, and electronic checks). Paying a vendor using a credit card, debit card, etc and receiving an electronic invoice in exchange for a service qualifies as an electronic payment as well. The advantage of electronic payment methods over traditional B2B payments, such as checks, is that they eliminate expenses like paper, postage, and manual labor fees.
Types of Electronic Payments
Ecommerce payments may seem similar because they happen online, but they actually vary in different ways. With the rapid growth of ecommerce, people have adopted different methods to pay for goods and services online. Customer preferences for ecommerce payment methods differ across the world, and the field is always changing. Credit and debit cards, as well as digital wallets, are widely used globally for ecommerce payments. However, in certain regions, bank transfers and cash on delivery (COD) are still popular choices. Mobile payments are also on the rise, especially in markets where smartphones are widely used.
Here are the common types of electronic payment methods:
Credit/debit card
This is the most widely used option for online transactions. Users can simply enter their credit card details into an online form, provided they have the necessary authentication credentials. Cards are a convenient payment method that allows businesses to process credit payments and often have debit card features. Cards help with managing cash flow and provide quick financing options, which can be particularly beneficial for small businesses.
However, credit cards have disadvantages when it comes to making credit purchases. One significant drawback, especially for B2B transactions, is that merchants are charged fees for accepting credit cards. These fees can be passed on to customers through checkout surcharges or indirectly through increased prices. As a result, customers may become frustrated with companies and business owners.
The issue with credit cards extends beyond fees. The major concern is the risk of fraud, as the same card numbers can be used repeatedly for payments, whether authorized or not. In this way, companies need safer alternatives for conducting payments.
Payments with debit cards follow a similar process to credit cards. However, in case of fraudulent charges, money is instantly deducted from the linked bank account, posing a higher risk compared to credit card transactions.
Mobile payment apps
These applications are linked to a user’s bank account, credit or debit card, or a combination of these options. Users can send and receive funds through the app, allowing for convenient purchases without directly sharing bank account details with merchants.
Mobile payments are a convenient option for busy individuals who need to pay their workers regardless of their location. It eliminates the need for a fixed workspace or a traditional computer; as long as they have a smartphone, payments can be made.
However, there are drawbacks to mobile payments. It places a significant burden on customers, which is why businesses should allow it as an option but not make it mandatory. This is because smartphones and mobile payment platforms can pose security risks and require frequent software updates.
Mobile wallets
Similar to mobile payment apps, mobile wallets utilize funds from a user’s bank account or credit/debit card to facilitate online transactions.
Now that mobile wallets are becoming widely popular, businesses can expect more vendors who are willing to accept payments through various devices and methods that suit their preferences.
However, there are some drawbacks to using digital wallets. If you run an online store or sell through a mobile app, accepting digital wallet payments will require some effort. You’ll need to add new code to your website or app, which may require the assistance of a developer if you’re not familiar with coding.
How to choose electronic payment methods?
When establishing your own online store, choosing the right electronic payment in ecommerce is a crucial decision. We have already discussed the various options for electronic payments, and now let’s explore the key factors you should consider before making a choice for your electronic payment system.
Cost
To find the most suitable payment structure for your needs, take the time to calculate the number of transactions and the amount of money involved. Consider which pricing option would be most advantageous. If you’re just starting out with few sales, a payment per transaction might be more cost-effective. This way, you only pay when someone makes a purchase, avoiding a monthly bill regardless of transaction volume. However, if you run a larger company, a fixed monthly fee could be cheaper compared to paying for each transaction. Systems that combine a monthly fee and a charge per transaction are also better suited for larger businesses.
In addition to the basic system costs, some providers may charge extra for things like chargebacks (when a customer disputes a fraudulent charge and the bank reverses the payment) and payments made with international cards.
Although certain payment systems may initially seem like a good deal, consider whether your business will involve many international transactions or experience rapid growth that could lead to increasing fees as you expand.
Compatibility
For ecommerce businesses, it’s important to have payment methods that work seamlessly with their ecommerce platform. Certain payment options might need extra integration efforts, which can be both expensive and time-consuming. By partnering with user-friendly payment providers, businesses can reduce the burden of establishing and managing their payment infrastructure.
Location of customers
Understanding the diverse payment preferences in various global markets is key to choosing the right electronic payment method. Take into account where your customers are located and provide payment options that are popular and widely recognized in those regions. In certain countries, cash on delivery might be favored, while bank transfers could be more prevalent elsewhere. With the right payment provider, you can access a wide range of payment methods and various currencies to cater to customers worldwide.
Security
For the safety of both ecommerce businesses and their customers, it is important to provide secure payment options. Opting for payment methods that incorporate two-factor authentication, encryption, and fraud detection is generally more advisable than choosing options with fewer security measures.
When customers make online purchases, they have high expectations for the confidentiality and security of their financial information. To gain their trust and encourage them to come back, businesses should prioritize secure payment processing. This not only ensures customer satisfaction but also increases the likelihood of positive recommendations from satisfied customers.
To safeguard against data breaches and fraud, the Payment Card Industry (PCI) has implemented security standards. Online businesses are required to adhere to these standards when processing payments to protect their customers’ financial information. Non-compliance may lead to penalties and harm a business’s reputation.
Fraud detection and prevention tools can also be employed by online payment processing systems to detect and stop fraudulent transactions. These tools are beneficial for businesses as they prevent chargebacks, minimize losses, and safeguard their reputation.
Also, in the event of a data breach or security incident, it can disrupt business operations and harm a company’s reputation. By prioritizing secure payment processing, businesses can be well-equipped to handle security incidents and ensure uninterrupted operations.
Mobile payments
When customers make mobile payments, the money is taken from their credit card accounts. However, accepting Apple Pay or Google Pay involves using a different payment method. Essentially, mobile payments have their own unique process for securing transactions, and they are offered separately through various payment gateway services.
The availability of mobile wallets can vary depending on the country where you conduct your business. Nonetheless, the three major applications—Apple Pay, Google Pay, and Samsung Pay—currently support all four major credit card networks and operate in numerous countries. To determine if a payment gateway supports mobile wallets and which ones specifically, you should visit the provider’s website and seek the relevant information.
Customer consideration
When deciding on payment options, it’s important to consider your customers:
- Customer preferences: Selecting a payment method that your customers prefer will increase the likelihood of them making timely payments. Electronic credit and debit cards are the most commonly used payment method. Nowadays, most credit card transactions in physical stores are contactless.
- Payment privacy: Certain payment methods offer more privacy than others. For instance, credit cards automatically keep a record of transactions. Some customers may prefer to pay in cash for specific goods and services, such as medication, to maintain their privacy.
Your best Electronic Payment Gateway for Ecommerce: Oceanpayment
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Our easy-to-use interface simplifies your customers’ checkout experience while expanding your global reach. With our advanced fraud protection and multi-currency support, choosing us as your preferred electronic payment gateway builds customer trust, increases conversion rates and accelerates business growth.
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