all started thirty years ago with a pepperoni and mushroom pizza...
Popular wisdom has it that the first online purchase was made from Pizza Hut in 1994.
Since then, the growth of online payments has mushroomed (please forgive the pun), beyond all expectations.
In this blog we will look at what online payments are, how they work, how exactly businesses can accept them, and more.
Today’s online payments landscape
The online payments market was valued at over USD $102 billion in 2022 and estimates are that this will reach USD$ 510.30 billion by 2032.
This growth is likely to be partly fueled by upcoming increases in internet speeds and device capabilities.
B2C vs. P2P online payments
These payments are business-to-consumer (B2C). They involve customers paying for items or services they have acquired from a company or other type of organization.
They are different to peer-to-peer (P2P) payments, which involve one individual sending money to another's bank account. For example, splitting restaurant bills or settling other debts.
Although P2P arguably allows individuals to accept online payments, these do not need the same type of services.
For example, they don't need the payment processors or merchant accounts that businesses need to accept credit card payments or other payment methods.
Benefits of accepting online payments
1. Increased sales
Accepting B2C digital payments ultimately increases your access to potential customers, which can increase sales.
Accepting payments in different currencies can help grow your online business even further. It can even fundamentally transform your business from being nationally-focused to serving a global market.
2. Improved customer experience
Simple and easy payments are key to converting site visitors to customers.
In recent years, options such as one-click payments have removed the need to enter any account or personal details to make a payment. This is not only highly efficient for your customer, but it can also help increase your sales conversion rate.
Today's sophisticated buyers expect an omnichannel experience. They are looking to complete their purchase in just a few clicks and have choice of payment methods at the checkout page.
Accepting electronic payments means you can accept traditional cards and payments as well as more alternative payments methods such as eWallets on smartphones or via apps.
Other ways to improve customer experience
There are a number of other ways to improve customer experience relating to payments which encourage buyers to complete their purchase. These include offering:
- Free shipping
- Promotional codes
- Transparent pricing on your site
and more.
Offering a variety of payment options matters
Gone are the days when online payments could only be made using credit cards.
While traditional forms of payment such as credit or debit cards are still common, there are many more ways to accept online payments and alternative payment types available today than ever before.
The number and diversity of the online payment methods you can offer customers is dictated by the payment service provider you choose.
Below we outline the main ways to accept online payment methods and some new and alternative ways to pay that are growing in popularity.
Types of online payments to accept
1. Bank transfers
A bank transfer is a payment method that moves funds from one bank account to another.
It can take place between two different banks or between accounts held with the same bank. They can be domestic (within the same country) or international.
A customer would choose an option to pay via bank account on the checkout page and the business provides its bank account details to their customer. A unique transaction reference code is usually provided to help identify the incoming payment.
An international bank transfer can be made but it will need to go through the SWIFT network used by the wire transfer payment method described below to complete the transaction.
Wire transfers
When money needs to be transferred from one financial institution directly to another, a wire transfer can be used. The money usually arrives on the same business day and so predictably incurs a higher fee than a bank transfer.
Wire transfers are typically used for high-value transactions. These transfers can be made to domestic recipients within the same country as the sender, or internationally. The latter payment process is also known as a remittance transfer.
Both bank and wire transfers can be sent nationally, but only wire transfers can be made internationally.
Direct debits
Direct debits are an automated payment type that can be used by consumers or businesses for recurring billing.
They are commonly used to pay for goods and services where the amount paid either stays the same or varies from month to month. Examples of these include electricity bills or mobile phone charges.
Direct debits can also be used to pay for larger purchases to spread the cost over a period of time. They are a low-cost and reliable way to accept payment from customers with minimal effort.
Unlike bank transfers, direct debit transactions may be reversed by a bank, if required.
ACH payments
In this payment method, funds are processed through a network of financial institutions - the Automated Clearing House (ACH) network. ACH transfers are a relatively slow method of moving money.
On the upside, they are inexpensive or sometimes incur a zero transaction fee. The ACH network is commonly used to process several types of transactions, including:
- Direct debits
- Direct payments
- Electronic funds transfers (EFTs)
- Payroll deposits
- Tax payments
And more.
2. Credit and debit card payments
Credit cards are where online payments started. They still represent a significant percentage of online payments processed today.
However, debit cards have closed the gap in recent years. Now 54% of US consumers use a physical or virtual debit card, compared to 36% of consumers using physical or virtual credit cards.
To accept credit and debit payments online, businesses will usually first choose a payment gateway.
Their payment gateway provider will that set them up with a merchant account with a payment processor.
And it will provide them with the application programming interfaces (APIs) and security tools to connect their online sales channel to the processing network.
3. Digital wallets
Globally, digital wallets (or eWallets) are the most popular online payment method.
They make up approximately half of global e-commerce payment transactions. This is estimated to increase to over 54% percent by 2026, which means 5.3 billion users.
Popular digital wallets, listed in order of their global usage, include:
- Google Wallet (formerly known as Google Pay)
- Apple Pay
- Samsung Pay
Some digital wallets enable cardholders to digitize their physical cards. This means they can hold them within a mobile wallet and spend without the need to carry physical cards.
Other types allow users to hold actual currency balances, including cryptocurrencies. Finally, some digital wallets use open banking to enable payments on an account-to-account (A2A) basis.
4. Invoice issuing and billing
For business-to-business (B2B) sales, sellers often send invoices to buyers with specific payment terms, such as 30-day settlement (also known as net 30).
Automated invoicing software can create a reliable stream of recurring payments into business accounts.
It can be linked to payment processing systems that enables buyers to choose from different online payment options at checkout.
Pain points of accepting online payments
1. Costs
All payment service providers charge transaction fees each time businesses accept online payments.
These can be made up of charges levied by payment processors, including initial setup fees, transaction fees, and fees added by major payment schemes such as Visa and Mastercard.
Typically, credit cards incur the highest transaction fees. And newer payment options such as mobile payments, bank transfers, cash vouchers and e-wallets are a less expensive.
2. Integration
The integration of functionality between payment gateways or other online payment systems can be complex.
However, most modern online payment processing providers will enable businesses to accept popular online payment methods quite easily.
They may be able to offer access to their payment system through a single API connection. This should make the process of connection an inexpensive and quick.
3. Data security
As online payments become more popular, bad actors devote more energy to disrupting and stealing from them.
However, thanks to advancements in digital payments technology, regulation, and compliance, many payments providers are able to stay one step ahead. For example, many payments providers utilize PCI validation to significantly improve data safety.
How Nuvei can help
By choosing Nuvei as your payment service provider, you can grow your revenue and delight your customers by offering them multiple and seamless payment methods.
Easily accept online bank transfers, credit and debit cards, mobile payments, bank transfers, cash vouchers, e-wallets, as well as more than 150+ currencies.
Conclusion
Online payments have come a long way since that first purchase at Pizza Hut.
Today, the benefits of accepting payments online are clear. The ability to accept payments online is now essential to millions of businesses around the world.
As the online payments market continues to grow, staying ahead requires adaptability and a commitment to providing a seamless customer experience.
To thrive, businesses must choose a payment service provider that aligns with the shifting preferences and expectations of today's online consumers.
There are pain points in being able payments online. These include ongoing fees, integration complexities, and security measures. However, these are often addressed by payments service providers.
Technology and customer expectations will continue to change. The most successful businesses will be those that remain ahead of their customers, offering not only the most relevant payment methods but also the greatest buyer experiences.
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