Payment methods

The acceptance of the payment method among the target group plays an important role. More than 70% of buyers cancel their shopping plans if their preferred payment method is not offered. In addition, the online retailer must also keep an eye on the effectiveness and profitability. As a rule, it makes sense to focus on three to six payment methods and analyze them regularly for key figures.

Bank transfer such as Sofort

With bank transfer online purchases can be processed in real-time. Customers enter their online banking data into the payment processor and authorize the transfer with their TAN (transaction authentication number). This is easy for the customer and they do not have to enter much personal data. This also reduces the risk of payment mistakes or fraud. Retailers receive a normal transfer and a direct confirmation of the successful payment from the customer. Then they send the product directly.

For retailers, this method is almost 100% failsafe and a perfect alternative to the classic prepayment processing method. The payment method also offers less credit risk to the customer. The payment service provider transfers the payment directly after the order is placed, lessening the effort for retailers. A study by ibi Research shows that average costs for SOFORT transfers is about 1.88 euros, while the cost of a traditional prepayment is about 3.54 euros.

Credit card payments – Visa, MasterCard, American Express

Credit cards are becoming more and more popular, because they are quick and easy to use. The customer enters their credit card information into an online formula on the shop’s website, which is then sent over to the PSP, directly to the acquirer or to the bank that oversees credit card transactions. Visa and Mastercard are the most common credit cards in the German market.

This method of payment can be advantageous for retailers, because the risk of unpaid invoices is negligible, as the money cannot be easily taken back after processing. Fraud, however, is a risk that must be assumed by the retailer. If a retailer wants to offer credit card payments as a method of payment in their shop, they must sign a separate contract that addresses credit card acceptance with an acquirer. Typically, retailers who already have established shops sign these contracts. For start-ups, it is more sensible to use a payment service provider.

Additionally, the PCI-DSS, a high security standard, upholds requirements that shops must fulfill in order to offer credit card acceptance, processing and storage of data.

It is easier to offer credit card payments through a payment service provider. Most PSPs are PCI-DSS certified and take over the payment process and risk of unpaid invoices. Retailers typically pay a fee from around 2 to 4% of transaction revenue for this service.

Direct debit

Direct debit is also a common method of payment used in Germany. The customer chooses to pay through the direct debit process and enters their information into an online formula on the online shop’s site. A direct debit authorization is then executed and when successful, the retailer immediately takes the money out of the customer’s account and then ships the order. The process is quick, cost efficient and is thus offered by many online shops. The possibility of unpaid invoices is a lot lower when using direct debit compared to purchasing on account. However, if the customer disputes the charge, enters false information or there is not enough money in the account to complete the purchase, reimbursement fees occur. Moreover, retailers do not have any legal proof needed for collection when there is no written authorization of the direct debit charge. For this reason, retailers should take precautions and insure themselves against fraud and credit risks through preventative measures and using payment service providers. PSPs offer to assume liability for direct debit and take anywhere from 2 to 10% of the revenue per transaction for this service.

E-wallets – such as Paypal

PayPal is an internationally-renowned online payment processor. In order to accept customer payments through PayPal, they must create a free account and enter their bank and payment information on the PayPal website and authorization. In addition to a checking account, customers can also add their credit card details. When a customer chooses to use PayPal as their payment method, they are automatically forwarded to PayPal’s website to complete their transaction. Once redirected, they enter their user information and the payment is processed. The retailer receives a confirmation of payment from PayPal and can then send the product ordered. This method is safe and easy for the customer that can be used even for small transactions. Retailers pay 1,9% plus 35 cents per transaction unless they create a special agreement between their business and PayPal.

Other e-wallets include Amazon Wallet and Skrill.

Invoice purchase

The invoice is a payment option which is very popular in specific countries such as Germany. If the customer chooses to pay his online purchase by invoice, he receives an invoice with a payment request. After the delivery of the goods, the invoice must be paid by bank transfer. The settlement is made either directly or within a specific time frame. It is also possible to stipulate a different date for the settlement.

Mobile payment – Example Boku

Payment processing on smartphones requires payment information to be processed and authorized over the phone interface. The customer chooses the option in the online shop and enters the mobile number and password. He then receives the mTan (mobile transaction number) per SMS he can enter in order to complete the payment. The amount is then taken from the mobile account. When shopping over smartphones, the booking process takes only two clicks. This is advantageous because it minimizes data theft as every single transaction needs to be confirmed by the smartphone user.

Prepaid cards – such as Paysafecard

Prepaid cards can be used for any purchase that does not exceed the amount of money loaded onto the card. The customer adds a desired amount to the card and can use it to shop thereafter. In order to pay with it, the customer chooses the prepaid card option, enters the information and the PIN from the card. After receiving confirmation of the validity of the card, the money is taken from the card balance. This is advantageous for customers because it can be used anonymously and is not at risk of much fraud or misuse, as there is only a certain amount of money tied to the card. This card is a good choice for minors, because they don’t have to reveal any information about themselves online. The costs of purchasing a prepaid card can amount to 8 to 15% of the transaction revenue.