??A guide to types of payment methods!
Reference No.: FE201S189 I Date: Tue, Sep 24, 2024 I Editor: Mr.Sinan Can
?? A complete guide that lists the different types of payment methods available to help you understand and select the right payment options for your business.
As online tools make it easier to connect with global customers, more and more businesses are selling overseas.
While reaching a global audience is easier than ever, online businesses also face a new challenge:
How do you appeal to a global audience’s diverse customer preferences during the checkout experience?
The way customers choose to pay for goods or services online varies greatly depending on where they are located. If you don’t create a relevant, familiar checkout experience, you could be cutting off entire countries from your addressable market.
As the global payment landscape becomes increasingly complex and fragmented, Online Payment Gateways make it easy for businesses of all types, anywhere in the world, to discover and accept popular payment methods with a single integration.
This guide will help you evaluate and identify the payment methods that best fit your business model and customer preferences
???1. The Benefits of Payment Methods
Over the past decade, payment methods have evolved to support different consumer and business needs.
Markets with high card penetration, such as the US and the UK, have seen a significant shift toward digital wallets like Apple Pay and Google Pay, which offer more security and convenience.
Some markets, such as France and Japan, even have their own local card networks that help businesses reach more card users.
In markets like Germany and Malaysia, where card use is much lower, bank-based methods are strongly preferred and trusted for online purchases.
The banking networks in these markets typically offer a faster and more secure checkout experience where users can authorise a payment using their online banking credentials.
Meanwhile, in economies with a large unbanked population, such as Mexico and Indonesia, popular payment methods allow customers to pay for online goods with cash using vouchers.
These graphs show how payment method preferences vary across countries.
By accepting payment methods that are both preferred by your customers and relevant for your business model, you can:
? Reach more customers globally:
As you expand into new regions, accepting local payment methods may be necessary to capture the total market opportunity.
For example, 56% of online transactions in China involve digital wallets such as Alipay or WeChat Pay, and 20% use the local card network China UnionPay. Without supporting these payment methods, you may risk missing out on the substantial and growing buying power of Chinese consumers.
? Increase conversion:
Up to 9% of shoppers abandon their cart if their preferred payment option isn't available. Surfacing the right mix of payment options to customers can meaningfully increase the chances that they'll successfully complete a purchase.
? Reduce fraud and disputes:
Anticipate and manage the risks associated with accepting online payments by choosing payment methods that match your risk preferences. As a general rule, the better the level of customer authentication, the lower the likelihood of fraudulent and disputed payments.
? Optimise your transaction costs:
Payment methods have inherently different cost structures. Depending on your business model and where your customers are located, certain payment methods may or may not be relevant.
???2. Choosing the right payment methods for your business
Whether you want to improve conversion in your domestic market or expand globally, surfacing relevant payment methods to your customers is key. But depending on the nature of your transactions and where your customers are located, certain payment methods may or may not be relevant.
This section covers the eight major payment method families and specific considerations based on your business model: e-commerce and marketplaces, on-demand services, SaaS and subscription businesses or professional services. If you are a B2B platform that enables your users to accept payments, your relevant payment methods depend on the business model of your users.
Cards
Cards are linked to a debit or credit account at a bank. To complete a payment online, customers enter their card information at checkout.
Digital wallets
Wallets are linked to a card or bank account, but can also store monetary value. Wallets typically require customer verification (e.g. biometrics, SMS, passcode) to complete a payment.
Bank debits
Bank debits pull funds directly from your customer's bank account. Customers provide their bank account information and typically agree to a mandate for you to debit their account.
Bank redirects
Authenticated bank debit methods add a layer of verification to complete a bank debit payment. Instead of entering their bank account information, customers are redirected to provide their online banking credentials to authorise the payment.
Bank transfers
Credit transfers allow customers to push funds from their bank account to yours. You provide customers with the bank account information they should send funds to.
Buy now, pay later
Buy now, pay later is a growing category of payment methods that offers customers immediate financing for online payments, typically repaid in fixed instalments over time.
Cash-based vouchers
With cash-based vouchers, customers receive a scannable voucher with a transaction reference number that they can then bring to an ATM, bank, local shop or supermarket to complete the payment in cash.
Real-time payments
Enable your customers to pay almost instantly, 24/7 directly from their bank accounts, wallets, or other funding source, which helps increase speed and conversion - all at a low cost to your business.
??????2.1 For e-commerce and marketplaces
Recommended: Cards; wallets; bank redirects; buy now, pay later; real-time payments
While frictionless checkout experiences are vital for any business model, their importance is magnified for e-commerce and marketplaces.
Customers expect streamlined payment experiences – ones that give them what they want, when they want it. The right set of payment methods not only offers payment flexibility and convenience to maximise conversion but also reduces fraud and increases transaction speed.
Cards are the most commonly used payment method, and it's important that you support all relevant card brands to optimise conversion and costs.
Digital wallets and authenticated bank debits can also help increase conversion by allowing customers to use stored payment information (the added verification also lowers the possibility of disputes).
Wallets, like cards, are a reusable payment method – customers provide their payment details once, and if that information is stored, they don't need to share any additional information for future payments.
This enables you to offer one-click checkout experiences. Real-time payments allow customers to pay almost instantly from their bank accounts, wallets or other funding sources, which help increase speed and conversion at a low cost. If you sell high-value goods, consider buy now, pay later payment options, which allow your customers to customise their payment terms and break up purchases into smaller instalments.
In many large markets with low card use, such as Brazil, Mexico and Indonesia, customers prefer to pay with cash-based vouchers and bank transfers, which don't support immediate payment confirmation or native refunds.
This can create challenges for e-commerce businesses that typically rely on real-time payment notifications to manage their shipping flows or refunds to promote customer loyalty.
??????2.2. For on-demand services
Recommended: Cards, wallets, real-time payments
With instant fulfilment at the heart of the customer experience, on-demand services need to encourage conversion – often on mobile – while managing fraud risk.
Consider focusing on payment methods that offer immediate confirmation that the transaction was successful, such as cards, wallets and real-time payments.
While digital wallets typically have the same transaction cost as cards, they are more secure since authentication is required to complete payment, lowering fraud and dispute rates.
It's still important to consider the local context, as payment methods with more friction may be trusted and preferred to pay for on-demand services or add top-ups to customers' app balance.
?????? 2.3. For SaaS and subscription businesses
Recommended: Cards, wallets, bank debits
If you manage recurring revenue and want to optimise your checkout experience for ongoing transactions, it's important to consider whether payment details can be stored on file and reused.
The ability to reuse a customer's payment credentials allows you to initiate payments on a custom schedule, without requiring any action by your customers.
Cards, digital wallet and bank debit payments are all reusable – customers only need to provide their card number or bank account details once.
And, for customers who prefer to use bank redirects such as iDEAL or Bancontact, Stripe makes it possible to use these methods for recurring payments by converting them into direct debits.
In addition, many SaaS and subscription companies face involuntary churn issues, where customers intend to pay for a product but their payment attempt fails due to expired cards, insufficient funds or outdated card details. In fact, 9% of subscription invoices fail on the first charge attempt due to involuntary churn.
While accepting reusable payment methods is beneficial to the business, it's also important to consider local expectations regarding recurring billing. For example, in markets like Brazil and Indonesia, it's common to send recurring invoices or reminders for customers to initiate each payment.
?????? 2.4. For professional services
Recommended: Cards, bank debits, bank transfers, real-time payments
If you offer professional services or wholesale products, even a single payment failure or dispute could result in significant revenue loss.
The ability to securely and successfully accept large payments can protect your business and can be solved, in part, by invoicing your customers so they have more flexibility to initiate payment when funds are available.
Historically this has often meant asking customers to send cheques. You can also send a hosted invoice with built-in support for cards and bank methods to minimise payment failure and automate payment tracking and reconciliation.
Real-time payment methods that allow customers to pay almost instantly from their bank accounts, wallets or other funding sources are another increasingly popular option in Asia and Latin America.
They have a low risk of fraud and disputes, as they require customer authentication.
In addition, bank transfers are a secure, non-disputable payment option that is often preferred for very large payments. Credit transfer funds are deposited directly into your account once the payment has been confirmed.
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Credit transfers also require your customers to initiate the payment, adding an extra level of authentication and security.
And, because contracts are typically in place before payment, it's less important that your business initiates the payment and more important that payments don't fail and can't be disputed.
While tracking and reconciliation for credit transfers can be difficult, some payment system generates virtual bank account numbers to keep your company's banking details private and automatically reconcile incoming payments with outstanding invoices.
Global Customers
E-commerce and marketplaces, On-demand services, Seas and subscription, Professional services
Asia-Pacific Customer
E-commerce and marketplaces, On-demand services, Seas and subscription, Professional services.
European Customers
E-commerce and marketplaces, On-demand services, Seas and subscription, Professional services.
North American and Latin American Customers
E-commerce and marketplaces, On-demand services, Seas and subscription, Professional services.
?? This table shows the relevant payment methods supported by the sample model for reference.
??? Multiple Payment Methods
??Seamless integration options for all business models:
Some payment products suite comes with built-in global payment support, so you can create localised payment experiences regardless of your business model.
Some financial payments API makes it easy to support multiple payment methods through a single integration. This leaves you with a unified and elegant integration that involves minimal development time and remains easy to maintain, regardless of which payment methods you choose to implement.
Supporting a localised and compliant payments experience for global customers is even easier with some financial payments Optimized Checkout Suite, which includes pre-built UIs Checkout, Elements, and Payment Links.
With the optimized checkout suite, you can turn on popular payment methods. All pre-built payment UIs are also able to trigger 3D Secure and can handle European SCA requirements by dynamically applying card authentication when required by the cardholder’s bank.
?? Payment Connection Method
The current mainstream payment connection method?
? The current mainstream payment connection methods include a variety of technologies and platforms that facilitate transactions across different sectors.
?? Here are some of the most commonly used methods:
? 1. Credit and Debit Cards
??Card Networks: Visa, MasterCard, American Express, and Discover remain dominant in facilitating electronic payments.
??EMV Technology: Chip-enabled cards provide enhanced security against fraud.
? 2. Mobile Payment Solutions
??Digital Wallets: Apps like Apple Pay, Google Pay, and Samsung Pay allow users to store card information and make contactless payments using their smartphones.
??QR Code Payments: Many mobile wallets and apps, especially in Asia, allow payments via QR codes, which can be scanned by merchants.
? 3. Online Payment Gateways
??E-commerce Platforms: Services like PayPal, Stripe, and Square enable online merchants to accept payments securely.
??Subscription Services: Many online businesses use recurring payment solutions for subscription models, relying on gateways for automated billing.
? 4. Cryptocurrency Payments
??Digital Currencies: Bitcoin, Ethereum, and other cryptocurrencies are increasingly accepted by some merchants and online platforms.
??Payment Processors: Companies like BitPay and Coinbase Commerce facilitate cryptocurrency transactions for businesses.
? 5. Bank Transfers and ACH
??Automated Clearing House (ACH): Used for direct deposits and bill payments in the U.S., ACH transfers are popular for recurring payments.
??Real-Time Payments: Systems like the RTP network in the U.S. and Faster Payments in the UK allow for immediate bank transfers.
? 6. Buy Now, Pay Later (BNPL)
??Financing Options: Services like Afterpay, Klarna, and Affirm enable consumers to make purchases and pay for them in installments, gaining popularity for online and retail shopping.
? 7. Contactless Payments
??NFC Technology: Near Field Communication (NFC) allows for tap-to-pay transactions with cards and mobile devices, increasing convenience and speed at point-of-sale terminals.
? 8. Invoicing and Payment Links
??Digital Invoicing: Services that enable businesses to send invoices with embedded payment links, streamlining the payment process for clients.
????????????????????????????????????
?? The mainstream payment connection methods are diverse and continuously evolving, driven by technological advancements and changing consumer preferences.
?? Businesses often adopt multiple methods to cater to varying customer needs and enhance the overall payment experience.
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