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What should I know about online payments?

What should I know about online payments?

Payments are an important factor in concluding a sale online. If you make it easy and smooth for your customers to pay, this reduces the risk of the shopping basket being abandoned and will increase conversion rates from browsing to sale. This means giving your customers a choice between different payment methods (e.g. credit or debit card, bank transfers, prepaid card, or some other means).

Therefore, the first thing you should consider, besides choosing the payment method that best fits your business or sector, is to understand how your customers would prefer to pay. Do they own a credit or a debit card? Do they actually prefer to pay by cash, or invoice? Or to use systems like PayPal?

Do some research via a non-exhaustive list of the various payment methods most commonly used in different European countries.

In addition, you will need to select the providers that are right for you, i.e. who will offer a secure payment environment and a single interface to the payment methods you have chosen to offer, as well as enabling you to operate across borders, if you decide to do so.

Offering online payments does not need to be a worry or expensive: numerous payment service providers now offer comprehensive, cost-effective and easy-to-implement outsourced solutions to get your business accepting online payments quickly.

Understand your customers’ needs

One of the most important aspects to consider when entering new markets is the payment methods that are accepted. You should understand your customers’ needs and how they prefer to pay. Moreover, people prefer options – therefore it is best not to limit your customers to only one method which suits you.

Payment preferences remain largely national and vary quite a lot across Europe. Where are your customers from? Analyse your data, select the country you want to enter, and check how people prefer to pay in that country. That way, you can tailor the payment methods you accept to the preferences of your clients.

If it is too difficult for you to establish which payment methods to offer, you may also choose to experiment: offer numerous different payment methods and adjust your payment offer afterwards (once you have evaluated your customers’ preferences).

Note that the situation in the online payments market is very dynamic and the payment solution your customers prefer today may not remain the same over time once new services are available.

Choose the right payment methods for your business

You should not just offer the payment methods that are most common in your market, but should choose the payment types that best fit your business. Aside from national preferences, key factors help determine user payment choices: the kind of goods or services you are offering, and the value of the transaction. For high value goods, customers may want to use a credit card in order to enjoy purchase insurance and guaranteed fraud protection. For micropayments (e.g. if you sell movies, video games, music etc.), you might consider opting for a micro billing system, using only a password to make the purchase.

Make sure that the payment methods you choose are straightforward and intuitive to use, and complete the transaction quickly. If your customers are confused or have to wait, there is a risk that they will abandon the transaction.

Consider offering alternative payment methods

Traditional online payment methods include credit and debit cards. However, numerous alternative online payment methods have emerged today to meet the needs of different customers. These include online payment accounts (e.g. PayPal, Amazon Payment), prepaid cards, online bank transfer, real-time bank transfer based on online banking or even cash-based e-vouchers.

Alternative payments offer simpler vehicles for completing the transaction and a higher user perception of security and/or anonymity. For instance, an online payment account/e-wallet (such as PayPal) means customers do not ,have to disclose financial information when purchasing online.

Not only will your customers appreciate being offered a broad choice, but offering alternative payments should also be considered in countries where alternative payment use is widespread and there is a limited choice of domestic payment methods.

Moreover, offering alternative payment methods can bring incremental sales from new customers. Only half of European online buyers own a credit card and one-third of Internet users do not shop online because of security fears, so offering easy, secure payment options for those potential customers can bring additional sales (Forrester, 2011).

Select the right payment services for you

There are three main payment services you can choose from. Which you choose will depend on what type of customers you have, and where and what you are selling.

•    Traditional ‘acquiring’ involves acquiring banks (also called, merchant banks) contracting with you to enable you to accept credit or debit card payments. Often, they use the services of payment processors. These are third parties that do the payments processing for them (e.g. Six Payment Service, Worldline), guaranteeing payment settlement, and managing risk and fraud.
•    If, in addition, you want to offer your customer more recent, innovative payment solutions, you can contract with alternative payment providers. Examples are Paysafecard (a virtual card based on cash that allow your customers not to disclose their identity), voucher services, mobile network operators (MNO), or again a new payment button system that allows the integration of a card reader within your phone apps within minutes. In most of these alternative payment options, customers do not have to disclose their account details or identity, but only provide their username and a password to complete the transaction.
•    Another option is collaboration with an online payment service provider (PSP), which acts as a one-stop shop for acceptance and management both of traditional and alternative payment methods in many countries around the world (e.g. Ogone, Adyen, Cybersource, etc.) Typically, they use a ‘software-as-a-service’ model and constitute a single payment gateway to multiple payment methods for their clients (merchants). They provide online payments pages that are highly customisable (e.g. with your brand and the payment methods you accept) and user-friendly website integration.

The advantages of using one payment service provider

The PSP manages the flow of information (such as transaction information) and provides you with a payment gateway to one or more online payment methods for which they act as an intermediary.

If you want to operate cross-border, you will need a PSP that unlocks payment methods in other countries and supports the currency in which you want to accept payments.

Especially if you are a small trader, it is highly advisable to use a single Payment Service Provider if you operate across different countries with divergent national preferences. The PSP’s have expertise on national markets and established relationships with most of Europe’s traditional and alternative online payment systems.

Hosted or integrated?

When setting up your payment gateway, depending on your level of technical expertise, you can either opt for a page hosted by your PSP or an integrated payment solution.

•    In the ‘hosted' payment solution, the PSP will ensure that the right level of security is in place. This enables you to save some time as you will not have to deal with security updates and compliance issues;
•    The alternative is an integrated payment gateway or application programme interface (API). Although this requires more advanced IT skills, and you will have to deal with security updates and compliance, an API gives you more flexibility and control over your payments page. It also means that your customer stays on your website. This can give them a better branding experience and you more control over information.  

One major advantage to outsourcing your payment process is that you also outsource your security. Security is critical, and is costly in terms of risk management, fraud, compliance with strict standards, and reputational risk. You must guarantee that security measures are sufficient to ensure safe and secure payments, such as strong customer authentication for payments, as well as measures to prevent payment fraud.

Payments is a volume business

The greater the volume of transactions you process, the bigger the discount on volume from which you can benefit. All PSPs charge on a fee per transaction basis. The transaction cost can be a flat charge per transaction and/or a percentage of the value of the transaction volume. The higher your transaction volume, the lower the percentage charged by the PSP. Some also charge a monthly fee and/or a setup fee.

There are many different PSPs to choose from. Choose the one that offers you the most attractive and convenient package of services, and one that fits the specific situation and requirements of your business.

Respect your customers’ rights

Make sure you comply with the following:

•    You should inform your customer at the beginning of the ordering process which means of payment are accepted;
•    You must disclose the total cost of the product or service, as well as any extra fees for payment. Your customer can refuse to pay charges or other costs that are not properly mentioned before the order is placed;
•    Pre-ticked boxes on websites for charging extra services are prohibited by law. You must explicitly ask for the consent of your customer to allow extra payment over and above the agreed price;
•    You are not allowed to charge your customer more than what it actually costs you to offer a given means of payment.

Note that in the event of unauthorised payment transactions, and billing or processing errors, the PSP is obliged to refund your customers immediately for the amount of the unauthorised transaction (in the case of a card scheme).

 

You are not allowed to charge the customer for requesting basic information on their payment transactions.
Once the payment has been confirmed by the customer, make sure to send an e-mail to show that the transaction has been completed.

Most popular payment methods

Cards
•    Credit Card: deferred payment via a line of credit or via a current account paid at month’s end (deferred debit)
•    Debit Card: Payments immediately deducted from the customer’s current account
Direct Debit
Financial Transaction in which one person withdraws funds from another person’s bank account.
Popular for low-value or recurring transactions. Mostly used for regular payments, such as subscriptions.
Credit transfers  (bank transfer)
•    Online (real-time) bank transfers: Offer payments with immediate online authorizations via the customer’s bank. It is highly appreciated for the merchants because online banking payment transactions (the ones based on credit transfers) do not have a chargeback risk; for your customers, because such transactions use the online banking services they are familiar with. Examples are iDEAL (all EU), GiroPay (DE), EPS (AT), Przelewy24 (PL), Trustly (SE).
•    Offline bank transfers: With a reference number, the customer must log in in their online bank account (or in a bank branch or telephone banking) to make the payment.
Mobile Payment
Payments performed from or via mobile devices. Two main categories: Direct carrier billing (your customers only need to provide their phone number to pay (popular for buying low value digital goods)) and Mobile wallets (most operate in their local country or territory). For more information on the growth trends of mobile payment see also Forrester Research (2016), Forrester Research Mobile Payment Forecast, 2014 to 2019 (EU07).
Cash on delivery
Cash on delivery allows your customer to pay at the time of delivery instead of having to pay upfront. Payment is made to the delivery operator and the delivery operator relays the payment back to you.
E-wallets or online payment account
An electronic payment system that lets the customers make the payment without entering their card details.
Advantages are: your customers fund their account from a credit or debit card or directly from their bank accounts. They are not required to disclose personal financial information (such as credit and debit card details) to you when buying online.
Wallet solutions have their own rules regarding fees and charge back rights, which add some complexity for you in case chargeback handling or refunds are required.
Examples are: PayPal, Qiwi, WebMoney, Paysafecard.
Microbilling systems (e.g. Internet+ (FR); MiniTix (NL), Clickandbuy (DE), ClickandBuy (UK version))
It allows your customer to charge small amounts (typically less than 5€) to purchase goods and services. Your customers use their passwords to buy online (e.g. Apple Itunes, and Skype).
Others
•    Local card schemes: specific to certain market, operate like traditional cards. An example in the EU is Bancontact (BE).
•    Prepaid debit card: Card loaded with stored funds before starting purchase. Not linked to one’s own bank account – therefore limited risk in case of fraud.
•    Post-pay: Your customer pay their product later, at an affiliated outlet or store
•    E-invoices: is an electronic transfer of invoicing information (billing and payment) between you and your customer. It enables the customer to pay after the delivery
•    Check (UK, FR, IT): A written order directing a bank to pay money (from the consumer’s current account)
•    Giro/Acceptgiro (SE, NL, DE, IT, ES): A system of transferring money within a bank or post office directly from one account into another

Sources: WorldPay Report (2017), Forrester Research, Inc (2011)

 

Austria Credit transfers: 32%
Direct debit: 25.5%
Card payments: 39%
Source: ECB Statistics Data Warehouse (2016)
Belgium Cards (2014): 55,9%, (2017) 49%
Bank Transfer (most popular: offline in real time): (2014) 24,3%, (2017) 20%
Invoices: (2014) 7,5%, (2017) 5%
Cash on delivery: (2014) 5,4%, (2017) 7%
E-wallets: (2014) 2,7%, (2017) 17%
Direct Debit: (2014) 0,9%, (2017) 1%
Mobile: (2014) 0,4%,
Source: Worldpay (2014), Worldpay (2017)
Bulgaria Credit transfers: 53%
Direct debit: 1.2%
Card payments: 20.5%
Source: ECB Statistics Data Warehouse (2016)
Croatia Credit transfers: 45.7%
Direct debit: 3.5%
Card payments: 38.4%
Source: ECB Statistics Data Warehouse (2016)
Cyprus Credit transfers: 19%
Direct debit: 9.6%
Card payments: 53%
Source: ECB Statistics Data Warehouse (2016)
Czech Republic Credit transfers: 66.5%
Direct debit: 2.7%
Card payments: 30.7%
Source: ECB Statistics Data Warehouse (2016)
Denmark Cards: (2014) 84,2%, (2017) 52%
Bank Transfer: (2014) 5,6%, (2017) 14%
Cash-on-delivery: (2014) 6%, (2017) 2%
E-wallets: (2014) 3,5%, (2017) 26%
Mobile: (2014) 0,4%
Direct Debit: (2014) 0,3%
Source: Worldpay (2014), Worldpay (2017)
Estonia Credit transfers: 33%
Direct debit: 0%
Card payments: 66%
Source: ECB Statistics Data Warehouse (2016)
Finland Credit transfers: 37%
Direct debit: 0%
Card payments: 63%
Source: ECB Statistics Data Warehouse (2016)
France Cards: (2014) 76,6%, (2017) 58%
E-wallets (Essentially PayPal): (2014) 11,2%, (2017) 21%
Cheque: (2014) 7,9%
Direct Debit: (2014) 2,4%
Bank Transfer: (2014) 1,1%, (2017) 12%
Mobile: (2014) 0,8%
Source: Worldpay (2014), Worldpay (2017)
Germany Invoice: (2014) 28%
Direct Debit: (2014) 22,1%, (2017) 1%
Cards: (2017) 27%
E-wallets (Essentially PayPal): (2014) 13,3%, (20170 25%
Cash-on-delivery: (2014) 8,3%, (2017) 9%
Bank transfer: (2014) 5,6%, (2014) 29%
Mobile: (2014) 1,7%
Source: Worldpay (2014), Worldpay (2017)
Greece Credit transfers: 45.4%
Direct debit: 4%
Card payments: 47%
Source: ECB Statistics Data Warehouse (2016)
Hungary Credit transfers: 46.6%
Direct debit: 6%
Card payments: 45%
Source: ECB Statistics Data Warehouse (2016)
Ireland Credit transfers: 20.7%
Direct debit: 10%
Card payments: 62.6%
Source: ECB Statistics Data Warehouse (2016)
Italy** Cards: (2014 – excludes debit cards) 65,4%, (2017) 52% (high share of pre-paid cards; 10%)
E-wallets (Essentially PayPal): (2014) 17,8%, (2017) 31%
Bank Transfer: (2014) 4,6%, (2017) 10%
Direct Debit: (2014) 1,7%, (2017) 5%
Mobile: (2014) 0,4%
Source: Worldpay (2014), Worldpay (2017)
** Only 20% of the population is shopping online (Eurostat, 2013)
Latvia Credit transfers: 39%
Direct debit: 0%
Card payments: 60%
Source: ECB Statistics Data Warehouse (2016)
Lithuania Credit transfers: 35.6%
Direct debit: 4%
Card payments: 51.5%
Source: ECB Statistics Data Warehouse (2016)
Luxembourg Credit transfers: 2.5%
Direct debit: 0.8%
Card payments: 5.3%
Source: ECB Statistics Data Warehouse (2016)
Malta Credit transfers: 24%
Direct debit: 3%
Card payments: 53%
Source: ECB Statistics Data Warehouse (2016)
Netherlands Credit transfers: 29.2%
Direct debit: 16.1%
Card payments: 54.7%
Source: ECB Statistics Data Warehouse (2016)
Poland Bank Transfers (most popular: Offline): (2014) 44,6%, (2017) 46%
Cash on delivery and Cash on store: (2014) 39,6%; Cash on delivery (2017) 9%
Cards: (2017) 32%
E-wallets: (2014) 4%; (2017) 15%
Mobile (most popular: Direct Carrier Billing): (2014) 2,4%
Direct Debit: (2014) 0,4%, (2017) 15%
Source: Worldpay (2014), Worldpay (2017)
Portugal Credit transfers: 13%
Direct debit: 12.4%
Card payments: 69.3%
Source: ECB Statistics Data Warehouse (2016)
Romania Credit transfers: 40%
Direct debit: 1.8%
Card payments: 58.4%
Source: ECB Statistics Data Warehouse (2016)
Slovakia Credit transfers: 47.6%
Direct debit: 3.6%
Card payments: 46.2%
Source: ECB Statistics Data Warehouse (2016)
Slovenia Credit transfers: 41.4%
Cards: 42.2%
Direct debits: 10.8%
Source: ECB Statistics Data Warehouse (2016)*
* The source takes into account four payment methods (cards, cheques, credit transfers, direct debits). Data about other payment methods is not available.
Spain Cards (most popular: Credit cards): (2014) 70%, (2017) 47%
Cash on delivery: (2014)13,2%, (2017) 8%
E-wallets: (2014) 7,2%, (2017) 25%
Bank transfers: (2014) 7,6%, (2017) 16%
Direct Debits: (2014) 1,7%, (2017) 20%
Mobile (most popular: Direct Carrier Billing): (2014) 0,3%
Source: Worldpay (2014), Worldpay (2017)
Sweden Cards (most popular: Debit card): (2014) 34%, (2017) 53%
Bank transfers (most popular: Online): (2014) 27%, (2017) 21%
E-Invoice: (2017) 12%
E-wallets: (2014) 5,3%, (2017) 7%
Direct debit: (2014) 1,3%, (2017) 30%
Mobile: (2014) 0,9%
Source: Worldpay (2014), Worldpay (2017)
United Kingdom Cards (most popular: Debit card): (2014) 78%, (2017) 60%
E-wallets: (2014) 16,2%, (2017) 25%
Direct debit: (2014) 1,6%, (2017) 32%
Bank Transfer: (2014) 0,8%, (2017) 5%
Mobile: (2014) 0,7%
Source: Worldpay (2014), Worldpay (2017)

 

Sources of information

Understand your customers’needs

•    L. Camus , and P. Freeman Evans (2009), European Consumer Need Multiple Online Payment Methods, Forrester (PDF document), available at https://www.forrester.com/report/European+Consumers+Need+Multiple+Online+Payment+Methods/-/E-RES54726
•    Worldpay (2014), Your global guide to Alternative Payments (second edition – PDF Document) available at http://offers.worldpayglobal.com/rs/worldpay/images/worldpay-alternative-payments-2nd-edition-report.pdf
•    eCommerce Europe & Innopay, Online payments 2012 (PDF Document) available at http://cdn2.hubspot.net/hub/53/blog/docs/Ecommerce%20Europe%20report%20online%20payments%202012(1).pdf

Choose the right payment methods for your business

•    L. Camus , and P. Freeman Evans (2009), European Consumer Need Multiple Online Payment Methods, Forrester (PDF document) available at https://www.forrester.com/report/European+Consumers+Need+Multiple+Online+Payment+Methods/-/E-RES54726

Consider offering alternative payment methods

•    B. Ensor, and S. Poltermann (2011), Understanding online payment preferences in Europe, Forrester (PDF Document) available at https://www.forrester.com/report/Understanding+Online+Payment+Preferences+In+Europe/-/E-RES60108

Select the right Payment Service for you

•    OECD (2012), “Report on Consumer Protection in Online and Mobile Payments”, OECD Digital Economy Papers, No. 204, OECD Publishing. http://dx.doi.org/10.1787/5k9490gwp7f3-en
•    Wild Apricot How to Select an Online Payment Service Provider, available at  http://www.wildapricot.com/membership-articles/how-to-select-an-online-payment-service-provider
•    Electronic-payments.co.uk (2013), Payment gateway, available at http://www.electronic-payments.co.uk/payment-gateways

Consider using one payment service provider

•    B. Ensor, and S. Poltermann (2011), Understanding online payment preferences in Europe, Forrester (PDF Document) available at https://www.forrester.com/report/Understanding+Online+Payment+Preferences+In+Europe/-/E-RES60108
    
Respect your customers’rights

•    Consumer Rights Directive (2011/83/EU)
•    European Commission(2014), Taking consumer rights into the digital age: over 507 million citizens will benefit as of today, MEMO  IP/14/655
•    European Commission (2000), Payment card chargeback when paying over Internet