The Ultimate Guide to Payment Methods in Ecommerce: Everything You Need to Know
As an ecommerce business owner, you’ll know the importance of great processes. Digital customers are notoriously unpredictable. With average cart abandonment rates of 85.65%, you need processes so tight that customers don’t slip through the net. Payment methods are integral to this. In this guide, we cover everything you need to know about ecommerce payment methods.
Within, you’ll find:
- How to find the right method for eCommerce payments
- The different ecommerce payment methods
- Debit and credit
- Digital wallets
- Buy now, pay later
- Instant bank transfers
- Direct debit
- Managing multiple payment methods
Let’s dive in.
How to find the right payment method for eCommerce
The challenge when setting up or reviewing your processes for eCommerce payments, is knowing where to start.
So, what’s the logical first step? To understand what the customer is looking for.
There are 5 things people look for in a payment method.
- Speed: ECommerce shoppers are notoriously impatient. You need a fast and efficient checkout process to get them to convert.
- Cost: No one likes hidden fees and charges. These can be a big turnoff for customers, so payment methods that are expensive need to have strong benefits.
- Convenience: Ease of use isn’t just ideal, it’s expected. If your eCommerce payment method isn’t accessible and convenient, they’ll find another provider that is.
- Flexibility: Customers appreciate payment methods that offer flexible payment options, like instalment plans or delayed payment.
- Trust: Reputation means a lot. Customers want to trust the payment method that they’re giving their secure information to. So, having a familiar household name is a big tick.
Now we understand the bottom line, it’s time to consider the options available.
Curious about what's next for payments in 2023? From fraud prevention to BNPL developments we’ve run through our predictions, in our blog. Read now.
The different ecommerce payment methods
There are 5 main payment methods for ecommerce that you should be aware of when reviewing your payment offering. Below, you’ll find a breakdown of each, along with their pros and cons.
1. Debit card payments
The old faithful - debit and credit cards are the most popular payment method for online purchases, accounting for 66% of online payments in 2022.
But where do these sit when thinking about our 6 customer desires? Well, when it comes to:
Speed
Convenience
Trust
It ticks all the boxes. People trust in their plastic. And, thanks to features like scan to fill, this method can be quick and convenient. Plus, with the advancement of online banking, checks and verifications are pretty hassle-free.
But are there any downsides?
Short answer, yes. The payment failure rate - 5-14% is not something to take lightly. While debit and credit cards are widely trusted, they’re a common target for fraud. In fact, eCommerce card fraud totalled est £151 million in the first half of 2022 alone!
All this, and its popularity is slowly declining. It’s estimated that by 2026, the use of card payments will fall to just 33% of overall online purchases.
So, let’s do a quick roundup.
The pros:
- The most widely used payment method
- Quick and convenient to use
- Widely trusted
The cons:
- Payment failure rate 5-14%
- Common target for fraud
- Slowly reducing in popularity
2. Digital wallets
Digital wallets are the big in-thing. With 3.4 billion users in the UK in 2022, it’s easy to see why so many businesses are taking on this payment method. It allows customers to store their credit or debit card information in a secure digital platform - think PayPal, Apple Pay, and Google Wallet.
But how do they perform with our customer desires?
Convenience
Speed
This method is much-loved due to its convenience and speed. Using your digital wallet means you never have to type out a lengthy card number again. And, thanks to their cutting-edge encryption technology, it's known for being secure. From your end, a speedy payment process means a customer is more likely to complete the purchase - so it’s a win-win.
But what are the downsides?
While this payment method is growing increasingly popular, it’s not as trusted by the over 40s. There's also some initial integration work needed to offer these methods but your payment provider should be able to explain these to you.
Let’s do a quick roundup:
The pros:
- Convenient
- Very easy for shoppers to use
- Widely popular
The cons:
- Transaction fees vary depending on the payment type
3. Buy now, pay later
Buy Now Pay Later (BNPL) is a seriously popular eCommerce payment method. Companies like Klarna and Afterpay have rocketed to success thanks to their easy-to-use solutions. So what desires do they appeal to?
Convenience
Speed
Trust
People love BNPL because it allows them to buy without paying upfront. They can pay for their purchase in instalments or in a lump sum at a later date. And, with their user-friendly platforms and reminders, it’s generally a trusted arrangement. These companies are great for businesses, because they take on the debt - so you’ll still be paid in full at the point of purchase.
But what are the downsides?
While you’re not responsible for collecting the debt, you will be charged a per-transaction fee. And, the payment penalties are notoriously high - so if your customers do fail to pay on time, they will likely be stung with a hefty bill.
Also, these methods aren’t available to everyone - as customers must first qualify for credit.
The pros:
- Interest-free financing can increase checkout conversion rates
- Customers don't need to pay upfront
- Gaining popularity among consumers
The cons:
- Retailers are charged per-transaction fees
- Late payment penalties can discourage customers
- Not all customers qualify for credit
4. Instant bank transfers
A dark horse, instant bank transfers are sneaking up in popularity. With this eCommerce payment method, customers make payments using open banking technology - paying straight from their bank account at checkout through open banking APIs.
But where do these sit when thinking about our 6 customer desires? Well, when it comes to:
Speed
Cost
It’s ideal. Payments are instant, and make for great payment success rates.
But are there any downsides?
With any newer payment method, the biggest challenge is trust. People want a method they recognise, so a new option can put customers off. Also, the user experience does have space for improvement… it’s been reported to be fiddly and a little confusing.
Let’s do a quick roundup:
The pros:
- It’s quick, with instant payments
- Has great payment success rates
The cons:
- It’s not as well known with customers
5. Direct debit
One of the most familiar methods, direct debit uses recurring payments for things like utility bills or subscriptions. With this, you can 'pull' payments directly from customer accounts. So, how does it sit with our customer desires?
Convenience
Cost
Direct Debit is popular because of the convenience factor. It allows you to take payment without the customer having to do anything - so if your customers need to make regular payments, this is ideal. And, thanks to this, your payment processes are widely automated, reducing that admin time.
But what are the downsides?
While they don’t need to do anything for each payment, direct debits do take time to set up, and have been known to be a cause of frustration.
Let’s do a quick roundup:
The pros:
- Convenient, after set up the customer doesn't have to do anything
- Allows for automation
The cons:
- Lengthy set up process
So, those are the main payment methods to consider. Your last challenge is to choose. The good news is… it doesn’t have to be one size fits all.
Managing multiple eCommerce payment methods
The best way to reduce your cart abandonment rate is to provide a great variety of payment options. It’s been found that multiple options increase conversion rates. The problem is, it's difficult to set up and manage by yourself.
Online payments, handled your way
Here at Judopay, we power our customers with a single payment solution that produces conversion-driving checkouts, flexible payment flows and access to multiple payment methods.
