Payments happen as the final step in checkout right before confirming an order and letting customers know that the goods will be soon on their way. A fairly simple step at the end of the funnel – right?
Payments and checkout have quite an impact on the user experience and conversion of the purchase flow. There are multiple different payment options available that customers prefer between the markets. The unavailability of customers' favorite- or easiest-to-use payment option might lead to abandoning the cart. There is an ongoing debate about the direct impact of payment option availability on conversion, however, it varies between businesses: In a highly competitive market where there are multiple options for customers to choose from, the availability of the most favorable payment method will make a difference. If the competition is limited and you are the only one offering the service or goods, the availability of payment methods might not have a huge impact.
Let's take a quick look at the most preferred and popular payment methods on B2C eCommerce.
Payment cards dominate the markets, but virtual cards are becoming popular although virtual cards need the support of wallets in the checkout process. From a user's perspective cards work similarly. Major card schemes are accepted worldwide and payment authentication works through identification applications, SMS, or through online banking applications.
Cards are also used for subscription services and there are still a few things merchants can do to make card payments easier such as storing credit card information for logged-in customers or taking the exemptions for strong customer authentication into use.
Card information needs to be stored securely and it's often handled through a card platform offered by a payment service provider. Exemptions to authentication (Sometimes referred to as frictionless payments) include different options such as merchant fraud rate-based exemptions, low-value transactions, low-risk merchant exemptions, and options for customers to whitelist the merchant to avoid unnecessary authentications. Exemptions will require custom development and are most likely to be available through a custom or in-house payments platform.
Digital wallets are gaining popularity among eCom payments. In most cases, wallets are connected to a payment card, either physical or virtual card. The majority of banks support the dominating global wallets, apple pay, google pay, and Paypal but other interesting regional payment apps are not tied to operating systems or are browser specific. In the Finnish and Danish markets, the leading payment app is MobilePay. It works on both platforms and all browsers, connecting to the most available bank cards.
Popular, regional payment applications in other markets are worth noting too. Swish is a market leader in Sweden, Vipps in Norway, Twint in Switzerland. WeChat Pay and Alipay are a must for eCommerce in China. The benefit of implementing regional wallets is two-fold: They are widely used by customers and merchant transaction costs are lower compared to global competitors Google Pay and Apple Pay.
Visa and Mastercard have their own digital wallets to move friction from card payments. These are offered directly by the card schemes and require direct integration, but might be worth the effort to make card payments easier.
There are regional differences between countries: Wallets might hold an equal share of eCommerce payments between markets but the most popular brans differs between markets. From a merchant’s point of view, this requires localization of payment methods.
Finnish offering for payment methods has its specialty in online banking payments compared to other markets. Online banking payments are the second most popular payment method after card payments. This is probably due to the long history of online banking payments; they have been a fast, economical, and reliable way to transfer funds for many years. Finland isn’t the only European market where online banking payments have a significant share in eCommmerce payments: Austria, Belgium, Germany, Netherlands, Poland, Switzerland, and Sweden all have a fair share of their eCommerce payments handled through online payments. Other markets are just taking the first steps with online banking payments and the volume of transactions is still relatively small apart from Germany, Netherlands and Poland, and some other markets.
Open banking APIs have opened the possibility for third-party operators, such as Trustly, to offer online banking payments in multiple markets. Merchants benefit from online banking due to low transaction costs and relatively easy implementation, but there are a few things to consider before reaching out for online banking payments outside mature markets: make a plan on how to handle possible errors in the transaction process and prepare a solid capability to refund the payments. Service providers will also offer tools for automatic refunding and error handling, but make sure your company is aware of how errors and refunding are handled. From an end-user perspective payments through online banking do not bring that many benefits compared to cards, quite the opposite. Authentication processes for payments are identical and payments done through online banking do not offer the traditional guarantees provided by card schemes. Payment cards offer the chargeback possibility in case a product is faulty, the ordered product is not delivered, or does not match the original description.
Another popular option for a payment method is the buy now, pay later model. The Swedish provider Klarna dominates the markets in Europe. Klarna offers a few different options for customers such as paying in installments or payment after the goods have been delivered.
Employment benefits are also available to be used in digital commerce, thanks to employment benefits applications such as ePassi or Edenred. Stored value in the application can be used for different purposes, but mainly for well-being, culture, sports, and commuting (not to forget the lunch benefit!). While the scope of employment benefits is limited, there is a huge potential for merchants who operate in an industry, where employment benefits can be utilized as payment method.
Prepaid vouchers or gift cards are common occurrences in eCommerce. A simple solution is to provide vouchers available through merchants' shops directly. Vouchers can also be made available to be purchased through convenience stores, for example, Vouchers created with Blackhawk Network's service (based in the US) can be purchased from R-kiosks and multiple other convenience store chains throughout Europe.
There is lots of potential in payment methods. What do you need to know to select the ones that support your business?
Payment cards need to be supported on every market and digital wallets are also ranking up mainly because they are easy to use: wallets are authenticated by PIN or biometrical identification and the authentication process has less friction compared to a card or online banking authentication.
Wallets and online banking options are a bit more complex to make available because of the regional differences between the most popular options. The checkout must allow a dynamic setup and offer different options for each market. Wallets require the capability to configure payments from market to market and might not be possible for all eCommerce platforms or service providers and in some cases possible only through custom checkout development. Some regional payment options, such as employee benefits are not available through all eCommerce platforms due to limitations set by the platform provider.
Vouchers and gift cards are simple to make available in case they are sold and used online. When adding point-of-sale capability or when cards are sold through third-party distributors options become more limited and more customization is involved with the setup.
Buy now pay later options like Klarna are available through major players like Stripe and Adyen and they can be made available in the majority of cases.
Merchants should consider refund processes before adding new payment options. As a merchant, find out who to contact in case of refund or technical failure during the authentication process. Make sure that the refund process is highly automated and requires minimal manual handling.
A clear and easy checkout process with relevant regional payment methods is crucial from the end-user perspective and will help to minimize transaction costs. In most cases, it is the final step in the eCommerce purchase process followed by the confirmation before the customer finally receives the goods or services. There are other important aspects in eCommerce such as shopping cart and purchase summary will improve customer experience and help users complete their purchases — let’s focus on those next time!
Want to talk payments? Book a meeting with Antti!