Merchants that restrict their customers to a limited number of ways to pay are losing the opportunity to generate further sales, says Justin Fraser, sales and marketing director at SecureTrading.
Adding alternative payment methods is easier than you think and gives access to whole new customer segments and territories.
Enabling payment via a website with just a credit or debit card is no longer enough for most merchants to satisfy the needs of their customers and new target markets.
Merchants looking to expand into new territories often overlook the fact that not only do customers want to be able make purchases whenever or wherever they are, but also however they want, through different channels such as web or mobile and using alternative payment methods.
One size does not fit all – although credit and debit cards are the most common form of payment in the UK and US, in Germany, Netherlands, Austria and Belgium there has been a preference for alternative forms of payment and yes, they are four of the largest e-commerce markets in Europe.
Online shoppers who previously refused to use credit cards online are now poised to enter the market on the back of new payment methods, such as prepaid cards, direct debit, bank transfers, eWallets, store cards and cash.
Bank transfers for instance now account for a growing percentage of all alternative online payments, and enable the retailer to directly and automatically trigger a credit transfer with their online banking information.
It is an incredibly popular way to pay, particularly in Germany and the Netherlands. In Germany, there is sofortbanking and Giropay with 40 million and 17 million users respectively and 84% of all online shoppers in the Netherlands using iDEAL.
The benefits to merchants are that a transfer order is instantly confirmed allowing instant delivery of goods and services, which in turn enhances the customer experience.
With a high percentage of people having online bank accounts, a further benefit of accepting payments this way is that customers “push” the money out, dramatically reducing the risks of chargebacks, bad debt and lost stock. Customers usually trust this method of payment as there is no additional registration or use of a credit card.
Direct debit is another common payment solution for ongoing regular payments. ELV is a German specific payment type that is basically a spontaneous Direct Debit. It has the advantage of being universally available to all Germans with a bank account.
However, it carries a 13 month chargeback period with no signature and a six month period with a signature. Merchants should therefore think carefully about the risk involved before choosing to accept ELV as a payment method.
Different customer segments also need alternative payment methods. There are millions of people, including the youth market, that have no bank account, credit or debit cards, but who would like to pay with cash online.
Moreover, there is a group of potential customers that will not use their cards online due to fears over privacy and data security. By accepting payment methods like PayPal and Ukash, merchants can get access to these lucrative customer segments.
However, once merchants start to add new payment methods to meet the different needs of customers in multiple markets, they face the problem of complexity, as most methods address a domestic economy or have been specifically developed for e-commerce, and the payment systems are generally supported and operated by local banks.
Each alternative payment method has its own unique application and settlement process, language and currency support, and is subject to domestic rules and regulations.
The risk of greater complexity is exacerbated by the advent of further payment methods.
However, merchants who are able to progressively offer these to customers will win new custom and generate higher sales.
Working with a payments vendor that not only provides the processing capability for these methods but also understands how to get the best out of each is critical. In addition, merchants need to get a clear idea of how customers want to pay and make payments a core part of their offer.
Experian recently reported that on average 65% of customers abandon their online purchases before the checkout. It is therefore essential for any online retailer to develop a greater understanding of their customers’ needs, particularly cross-border customers as mentioned above, giving them as much choice as possible so that they proceed with the purchase.
For success, businesses need to put customers at the heart of everything they do, particularly payments, as increasingly it’s the customer who holds all the power. Merchants that have this level of insight can then work more collaboratively with their payment service provider to ensure that the payments mix on offer to their customers is perfectly balanced.
