Advantages and Challenges of Accepting Online Payments

The main principle behind any business is that one party provides a service or goods in exchange for payment by the other party, and naturally a key part of this process is the ability to accept payments. This principle is just as or more important with eCommerce businesses and comes with opportunities — and challenges — due to its digital nature.

The popularity of eCommerce has surged in recent years, reaching 46% user penetration rate for digital commerce in 2020 and increased appeal since then, with stunning growth during the global COVID-19 pandemic. During the first year of the pandemic, according to research, the number of customers registering for mobile banking rose 200%. Mobile banking traffic increased by 85%.

Because of this incredible growth in online transactions, merchants cannot deny the advantages of digital payments. Being able to accept online payments has become a mandatory prerequisite for companies large and small and electronic payment systems are that much more relevant.

Of course, online businesses and customers want online buying and selling to be simple, efficient, and safe, with automated processes to match. Payment service providers must accommodate increasingly evolving purchase patterns which involve sophisticated smartphones, e-wallets, contactless cards, cross-border sales, and multi-currency electronic payments.

Fortunately, payment gateways allow businesses to simplify the process, allowing them to go beyond geographical limitations in terms of audience and to boost revenue from the extra capabilities brought by these systems.

Payment gateways facilitate communication within and between banks or service providers, with software and servers that send transaction information to acquiring banks and responses from issuing banks (such as whether a transaction is approved or declined). Payment gateways count security as their top priority, as they are processing sensitive data like credit card numbers that are at risk to fraud.

Bonus: Check out this article to find out how online payment gateways work and how to choose the best for your business.

Despite the challenges and constantly shifting landscape of digital payments, the advantages of online payment processing are numerous. Fortunately for online merchants and consumers alike, an easy, seamless, and secure transaction process is possible when provided by a reliable payment processor.

Now, let’s go over the benefits enjoyed by businesses who accept online payments.

Advantages of Online Payments

Reaching global audiences

Possibly the biggest appeal to accepting online payments is that a business can open their shop to the whole world. As a merchant selling online, your offering is available to much more than just your own nationals; in fact, about 56% of online shoppers favor shopping cross-border and therefore one of the main advantages of digital payments is being able to expand your sales reach to these eager audiences of global users.

  • Merchant benefit: sales increases

Reduced costs for transactions

In comparison to classic payment setups, where the shopper leaves the comfort of their home to visit a store and pay there, or place an order and mail a check, online payments take place in a much more automated environment. This translates into reduced costs for your business.

Instead of having to employ a cashier or deal with the costs of processing payment slips, merchants can set up payment systems, often with no upfront cost, and transaction fees for sales recorded on their site are low.

  • Merchant benefit: cost affordability

Payment security

Accepting online payments comes with lower financial risks for the merchant, by comparison to traditional methods, where the seller may have to verify the integrity of the cash payment or deal with the fees associated with a bounced check.

Given the speed with which transactions conclude online, one of the advantages of online payment processing is that the shopper’s money is instantly deposited in the acquiring account. It can take as little as two or three days for online payments to be cleared, which gives merchants better control over their finances. What’s more, online payments tend to be more tightly regulated, offering extra peace of mind to those selling online.

  • Merchant benefit: operational performance

Optimized customer journey

Online payments allow shoppers to make purchases in whatever global market they want and at whatever time of day they prefer. Convenience in concluding a transaction is the primary reason why users shop online and, as a merchant, it’s important to cater to this preference.

Offering the online payment option lets you provide your shoppers with instant gratification, something to which they’re rapidly becoming accustomed. In the case of digital goods, today’s global shoppers may even receive the goods or gain access to them immediately.

  • Merchant benefit: sales increase, enhanced UX

Payment method acceptance

In traditional brick-and-mortar stores, payment from a customer is usually made via cash (in the country’s currency) or card, but in an online setup the possibilities of payment are almost endless. Depending on the type of payment partner you decide to work with, your consumers will have access to numerous payment alternatives.

Top-range payment providers include options for payments for eWallets, cryptocurrency, prepaid cards and so many more. What’s more, some payment providers even facilitate entry in new markets through the acceptance of local payment methods. In Turkey or Brazil, for example, users are accustomed to paying online with their local installment cards, so being able to accept payment through these means will positively impact you bottom line.

  • Merchant benefit: sales increases

More marketing/distribution channels available

No list of the advantages of online payment processing is complete without mentioning the benefits it can bring to your distribution channels. If you can accept payments online, you can branch out your sales into the affiliate domain and have other websites and online opinion leaders showcase your products and services with full online payment options available.

Merchants who sell online through affiliates can generate up to 28% of their online sales through these channels, which is a considerable uplift in revenue. It’s highly recommended that businesses explore options to join an extensive affiliate network and uncover this potential.

  • Merchant benefit: sales increases

More appealing to impulse buyers

While we’re on the subject of sales increases, consider how appealing your store becomes to impulse shoppers, especially when you offer online payment features. Depending on the product category you’re selling in, some products and goods manage to convince users on the spot, and facilitating the payment directly is yet another advantage.

  • Merchant benefit: sales increases

Recurring payments capabilities

In subscription or SaaS businesses, the task of accepting a payment from a client comes at specific intervals, therefore it is a recurring need. And while in the past subscription payment was possible via cash or checks, today few buyers would consider these payment options, especially when ordering digital goods.

An important payment gateway advantage is thus the automation potential it brings in subscription markets. Merchants can enable recurring billing features through these partners, which in turn translate into fewer required actions to make or accept a payment, both for the shopper and for the seller. Some suppliers also include rich subscription management features, which can be a real help for businesses aiming to improve their customer retention.

  • Merchant benefit: sales increases

Provides info for data-driven decisions

One of the biggest benefits of online payments is that they can provide valuable information about customers and their behavior — the products or services they click on, what device they are using to make a purchase, what payment methods they prefer, and how long (and where) they linger on your website.

The information gathered from customer data points can allow businesses to offer a more personalized experience that matches that behavior, can predict customer behavior and outcomes, and ultimately helps them provide a better experience and achieve higher revenue.

  • Merchant benefit: Risk mitigation, informative data, higher sales

Challenges of Online Payments

There are no outstanding disadvantages when it comes to online transactions, but there are several challenges that you will need to take into consideration before starting your online shop.

Technical problems

Like any system that depends on technical infrastructure, online payments themselves may be subject to disturbances and downtime. Fortunately, tech maintenance operations performed on online payment gateways or in the card network system are usually limited in time, announced in advance, and scheduled for periods when eShops don’t have a lot of traffic, often during the night.

It is good practice to check a future supplier’s SLA (Standard Level Agreement) before signing a new contract, to know in advance how much uptime is guaranteed for the merchant.

Unforeseen technical issues can also generate several hours of downtime, which may cause some frustration among shoppers who aren’t able to pay directly. These can, however, be moderated through the right communication and support offered on your site.

  • Merchant risk: stalled business

The cost of fraud

As appetite for online spending has increased, so have fraud attempts in the field. In 2018, some $24 billion were lost globally to fraudulent credit card transactions. One major disadvantage of online transactions, therefore, is the merchants’ and customers’ exposure to different malevolent attacks. From ID theft to database exploits and phishing attacks, criminals are becoming more and more versatile in the ways they attempt to interfere with online transactions.

Luckily, as hackers have diversified their arsenal so have payment solution providers. Card purchases, for example, are tightly regulated by security protocols and directives, which include top-of-the-line identity verification services such a biometrics or secure 3D protocols.

All-in-one payment providers also include additional security features in the face of fraud, such as secure web protocols, Address Verification Systems, or order monitoring options. The risk of fraud, even when it takes the form of friendly fraud, such as chargebacks, is greatly mediated by payment providers who offer comprehensive fraud mitigation options.

  • Merchant risk: increased costs

Password issues

Even though transactions use OTPs (one-time passwords), your customers’ personal data or bank account details may still be vulnerable. Privacy breaches can be an ongoing problem, especially for a business which processes a high number of online payments and works with a multitude of different banking institutions.

Merchant risk: reduced customer trust

Technological illiteracy

There will always be customers who are reluctant to use online payments, whether because they don’t know how to initiate making one or find it overly difficult to navigate the checkout process, or because they don’t trust that it’s a safe method and prefer making a more traditional payment. Especially in developing countries, this can be a drawback that businesses face when offering online payments.

Merchant risk: user churn

Conclusion

We hope our rundown of the advantages and disadvantages of online payments has provided enough clear evidenced that the benefits of accepting online payments greatly outweigh the downsides.

Finding the right online payment provider can guarantee access to extra business capabilities and more operational efficiency, whether we’re talking about small micro companies or enterprises.

Online payments are expected to become the norm in the coming years, and the distancing required by the COVID pandemic has only accelerated this development. Ensure your business stays modern by including options to accept online payments, and you’ll reap the added benefits that come with this choice.

Want to learn how to enhance the online payment experience for your clients? Make sure to watch this session to uncover why it pays to optimize the purchase funnel at the country level and get some examples and benchmarks from several markets on why it pays to have a GLocal approach.

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