Paying online: payment methods in e-commerce

The constant evolution of products, deals, and services available on the internet has resulted in a rapidly in­creas­ing range of payment methods. New and more stream­lined payment pos­sib­il­it­ies are con­stantly appearing on the market. But do these newcomers have what it takes to outdo tra­di­tion­al forms of trans­ac­tion? What ad­vant­ages does e-payment offer over credit, debit, or cash payment? And what risks are there when pro­cessing trans­ac­tions through third parties? In order to offer customers the best possible services, storeown­ers must keep an eye on these trends and provide a selection of secure online payment methods.

Pur­chas­ing on account

This form of payment is par­tic­u­larly favoured by in­ter­na­tion­al customers, and not without good reason; with this payment method, the risk of the trans­ac­tion is incurred by the online vendor. It’s the company’s re­spons­ib­il­ity to send the goods and the invoice together. Only once the customer has the package does the seller receive payment. The money is trans­ferred either by a money transfer form or online banking. This way, sensitive bank details aren’t disclosed on the internet. However, the shop owner then risks covering the costs should the customer fail to make the out­stand­ing payment. Despite this drawback, it’s still re­com­men­ded that online stores offer this payment method. External payment service providers, such as Klarna, minimise this risk by taking on the dis­trib­ut­or’s payment claim when it comes to issues of factoring and pro­cessing customers’ payments. Some online stores only offer this form of payment to their regular customers; a move that helps curb the risk of fraud or out­stand­ing payments. There are no trans­ac­tion costs when pur­chas­ing on account.

Pre­pay­ment

Advance payment is the exact opposite of pur­chas­ing on account. When a customer opts for this form of online trans­ac­tion, the goods are not dis­patched until the company has received payment. This way, the customer bears the risk of the trans­ac­tion. Should the online store turn out to be un­re­li­able, or even a scam, the goods may not be delivered, even if the customer has already paid for them. This also makes returning faulty or damaged goods much more com­plic­ated. To make this payment method more appealing to customers, some online traders offer exclusive online deals.  Con­ven­tion­al transfer fur­ther­more ensures that sensitive bank details remain secure, which presents another advantage to the customer. There are also no trans­ac­tion fees with this payment method. However, customers are advised to only use this method of payment if they trust the vendor, and that’s why it may be wise to offer pre­pay­ment as part of your range of online payment methods.

Direct debit

Direct debit is another popular and well-es­tab­lished payment method. Due to its re­l­at­ively low trans­ac­tion fees and planning security, this has proven to be a par­tic­u­larly at­tract­ive option for online trading. Direct debit to an online shop is a con­veni­ent option for buyers; the direct debit authority withdraws funds directly from the customer’s bank account, usually as soon as the goods have been sent off. Customers can also report any un­au­thor­ised trans­ac­tions to their bank and receive a refund. This offers solid pro­tec­tion against dubious companies and fraud­sters. However, this payment form can prove risky. When paying by direct debit, users have to disclose their account number and sort code as well as the name of their bank, making them­selves vul­ner­able to data theft and phishing.

This is why online store owners should ensure that private customers are only required to transfer their data over a secure site. The security protocol, ‘secure socket layer’ (SSL) offers reliable pro­tec­tion. In order to prevent credit losses through unsecured bank accounts, external services, such as Klarna, can offer a credit rating; keep in mind, though, that using this service will result in ad­di­tion­al trans­ac­tion fees.

Cash on delivery

Payment by cash on delivery is a practical com­prom­ise in favour of both the buyer and retailer’s security, which explains this payment method’s lasting pop­ular­ity. The customer pays the courier in cash directly on delivery, which bypasses the risk of sharing personal in­form­a­tion online. This makes it one of the safest methods of payment for online trans­ac­tions. Although this isn’t the most common method of payment, many major retailers and courier services still offer this service, including UPS and FedEx. With this form of payment, there is an ad­di­tion­al delivery fee, which the customer usually pays. One of the biggest risks this payment method poses occurs if the customer doesn’t receive the goods, as the seller is then left to cover the expenses. Another downside is that the customer has little or no chance upon delivery to check that the goods are in working order, making the return of damaged or un­sat­is­fact­ory goods more difficult than with direct debit.

Credit card

Paying by credit card is un­dis­putedly the most con­veni­ent online payment method for both parties. Generally, customers only have to give the name of the credit card company, personal card number, and security number in the stores’ auto­com­pleted order form during the payment process. The retailer then receives payment from the cor­res­pond­ing credit institute and sends the goods. Should these goods fail to arrive, or be in any way damaged or in­com­plete, the customer can easily obtain a refund from the credit card provider.

This payment method is available in prac­tic­ally every online store thanks to its un­com­plic­ated procedure. However, since this type of online trans­ac­tion also requires the customer to disclose personal bank details, the same risks are present as with payment by direct debit. This means that the same pre­cau­tions also apply: card details should only be given through a secure platform. Credit card customers are con­stantly being made aware of the dangers of internet scammers on the hunt for sensitive data through phishing scams. This is why online store owners have to overcome the ad­di­tion­al challenge of ensuring that customers’ data stays secure. There have been several cases in the past of hackers suc­cess­fully managing to access the big retailers’ databases, and other instances of employees for­ward­ing personal in­form­a­tion to third parties.