What are two advantages of online payment services?

Online payments let your customers pay for your goods and services through your website. Here are some of the top advantages, disadvantages and other tips for using online payments. 

Benefits of online payments

As well as disadvantages, online payment methods have several advantages.

Low labor costs

• Since online payments are usually automatic, they have lower labor costs than manual payment methods, such as cheque, money order, cash and EFTPOS.

Convenience for online sales

• Online payment methods allow conveniently selling goods and services online.

Automatic

• Online payments can be automatic, which can be convenient for you and your customers.

Fast transaction speed

• Online transactions quickly provide feedback to you and your customers.

Low risk of theft

• After processing delays, online payments generally go straight into your bank account, so they have a low risk of theft.

Disadvantages of online payments

Online payment methods have several disadvantages. Check out these examples:

Service fees

• Payment gateways and third-party payment processors charge service fees.

Inconvenient for offline sales

• Online payment methods are inconvenient for offline sales.

Vulnerability to cyber-criminals

• Cyber-criminals can disable online payment methods or exploit them to steal people’s money or information.

Reliance on telecommunication infrastructure

• Internet and server problems can disable online payment methods.

Technical problems

• Online payment methods can go down due to technical problems.

Processing online payments

Online payments are usually automatic. Check out this example:

1. Your business has a website with online purchase facilities to sell your goods and services.
2. A customer visits your website and finds some products they want to buy.
3. The customer checks out the products from your website and goes to the payments section.
4. Your website lets your customer know the total cost of the products they want to buy as well as their payment options.
5. The customer selects and completes their preferred payment method.
6. Your website automatically sends your confirmation of payment to you and your customer and sends a request to your business to ship the product.
7. Your website automatically gives your customer a receipt and/or a GST tax invoice.

Tips for using online payment methods

If you want to offer online payments, try some these tips:

Protect customer information

• Only retain credit and debit card information if you need it. Make sure you have good security to protect any information you retain.

Shop around

• Look for the best payment gateway provider or third party payment processor for your business.

Use encryption

• Make sure you use encryption for sending payment information to and from your website to protect your customers’ information from cyber-criminals.

Train your employees

• If your employees handle online payments, make sure they are properly trained in managing the online payments system and in keeping customer payment details secure.

The main principle behind business is that one party provides a service or goods in exchange for getting paid by the other party, so the whole profit part of this process demands the ability to accept payments.

As the popularity of eCommerce has risen greatly in recent years, reaching 46% user penetration rate for digital commerce in 2020, the advantages of digital payments have never been so appealing to merchants. Being able to accept online payments has become a prerequisite for companies large and small and, with it, the importance of electronic payment systems has become that much more relevant.

A payment gateway allows a merchant to go beyond geographical limitations in terms of audience and to boost revenue from the extra capabilities brought by these systems.

Bonus: Check out this article to find out how online payment gateways work and how to choose the best for your business.

The advantages of online payment processing are numerous – let’s go over the benefits enjoyed by businesses who accept online payments. 

Advantages of Online Payments 

Reaching global audiences

Possibly the biggest appeal to accepting online payments is that a business can open up shop to the whole world. As a merchant selling online, your offering is available to much more than just your own nationals – about 56% of online shoppers favor shopping cross-border and therefore one of the main advantages of digital payments is being able to expand your sales reach to these global, eager audiences.

• Merchant benefit: sales increases 

Reduced costs for transactions

In comparison to classic payment setups, where the shopper has to visit a store and pay there or mail a check, online payments take place in a much more automated environment. This translates into their reduced costs.

Instead of having to employ a cashier or deal with the costs of processing payment slips, merchants are able to set up payment systems, often at no upfront cost, and subsequently pay low transaction fees whenever a sale is recorded on their site.

• Merchant benefit: cost affordability 

Payment security

Accepting online payments comes with lower financial risks for the merchant, by comparison to traditional methods, where the seller may have to verify the integrity of the cash payment or deal with the fees associated with a bounced check.

Given the speed with which transactions conclude online, one of the advantages of online payment processing is that the shopper’s money is instantly placed in the acquiring account. It can take as little as two or three days for online payments to be cleared, which gives merchants better control over their finances. What’s more, online payments tend to be more tightly regulated, offering extra peace of mind to those selling online.

• Merchant benefit: operational performance 

Optimized customer journey

Online payments allow shoppers to make purchases in whatever global market they want and at whatever time of day they prefer. Convenience in concluding a transaction is the primary reason why users shop online and, as a merchant, you have to cater to this preference.

Without the online payment alternative, prospects would no longer be able to get the gratification that comes with paying online – today’s global shoppers are already accustomed to receiving an instant confirmation for their purchase and, in the case of digital goods, even receiving the goods or access to them directly.

• Merchant benefit: sales increase, enhanced UX 

Payment method acceptance

In traditional brick-and-mortar stores, payment is available usually via cash (in the country’s currency) or card, but in an online setup the possibilities of payment are almost endless. Depending on the type of payment partner you decide to work with, your consumers will have access to numerous payment alternatives.

Top-range payment providers include options for payments for eWallets, cryptocurrency, prepaid cards and so many more. What’s more, some payment providers even facilitate entry in new markets through the acceptance of local payment methods. In Turkey or Brazil, for example, users are accustomed to paying online with their local installment cards, so being able to accept payment through these means will positively impact you bottom line.

• Merchant benefit: sales increases 

More marketing/distribution channels available

No list of the advantages of online payment processing would be complete without mentioning the benefits it can bring to your distribution channels. If you are able to accept payments online you can branch out your sales in the affiliate domain and have other websites and online opinion leaders showcase your products and services with full online payment options available.

Merchants who sell online through affiliates can generate up to 28% of their online sales through these channels, which is a considerable uplift in revenue. Explore options to join an extensive affiliate network and uncover this potential for yourself.

• Merchant benefit: sales increases 

More appealing to impulse buyers

While we’re on the subject of sales increases, consider all of the impulse shoppers your store becomes appealing to when offering online payment features. Depending on the product category you’re selling in, some products and goods manage to convince users on the spot. It would be a shame to not facilitate the payment directly, so there’s another payment gateway advantage to add to our list.

• Merchant benefit: sales increases 

Recurring payments capabilities

In subscription or SaaS businesses, the task of accepting a payment from a client comes at specific intervals, therefore it is a recurring need. And while subscription payment was possible via cash or cheques in the past, nowadays few buyers would consider these payment options, especially when ordering digital goods.

An important payment gateway advantage is thus the automation potential it brings in subscription markets. Merchants can enable recurring billing features through these partners, which in turn translate into fewer required actions to make or accept a payment, both for the shopper and for the seller. Some suppliers also include rich subscription management features, which can be a real help for businesses aiming for customer retention.

• Merchant benefit: sales increases 

Challenges of Online Payments

There are no outstanding disadvantages when it comes to online transactions, but there are several challenges that you will need to take into consideration before starting your online shop.

Technical problems

Like any system that depends on technical infrastructure, online payments themselves may be subject to disturbances and downtime. Tech maintenance operations performed on online payment gateways or in the card network system are usually limited in time, announced in advance, and scheduled for periods when eShops don’t have a lot of traffic, often during the night.

It is good practice to check a future supplier’s SLA (Standard Level Agreement) before signing a new contract, to know in advance how much uptime is guaranteed for the merchant.

Unforeseen technical issues can also generate several hours of downtime, which may cause some frustration among shoppers who aren’t able to pay directly. These can, however, be moderated through the right communication and support approaches directly on your site.

• Merchant risk: stalled business 

The cost of fraud

As appetite for online spending has increased, so have fraud attempts in the field. In 2018, some $24 billion were lost globally to fraudulent credit card transactions. A big disadvantage of online transactions is therefore the merchants’ and customers’ exposure to different malevolent attacks. From ID theft, to database exploits and phishing attacks, criminals are becoming more and more versatile in the way they attempt to interfere with online transactions.

Luckily, as hackers have diversified their arsenal so have payment solution providers. Card purchases, for example, are tightly regulated by security protocols and directives, which include top-of-the-line identity verification services such a biometrics or secure 3D protocols.

All-in-one payment providers also include additional security features in the face of fraud, such as secure web protocols, Address Verification Systems or order monitoring options. The risk of fraud, even when it takes the form of friendly fraud, such as chargebacks, is greatly mediated by payment providers who offer comprehensive fraud mitigation options.

• Merchant risk: increased costs 

Conclusion

We hope our rundown of the advantages and disadvantages of online payments has clearly evidenced that the benefits of accepting online payments greatly outweigh the downsides.

Finding the right online payment provider can guarantee access to extra business capabilities and more operational efficiency, whether we’re talking about small micro companies or enterprises.

Online payments are expected to become the norm in the coming years, and recent distancing times have only accelerated this development. Ensure your business stays modern by including options to accept online payments, and you’ll reap the added benefits that come with this choice.

Read this dedicated whitepaper to learn successful tactics on how to upscale your conversion rates and maintain a sustainable business.