Where processing payments once meant accepting checks or taking credit card payments over the phone, today’s businesses have a broad range of payment options available to process payments quickly and efficiently.
According to WorldPay, digital and mobile wallets are the most popular payment methods for online shoppers worldwide, with 49% of online shoppers globally choosing to pay this way. If you don’t have the right technology to accept and process these payments, that’s a sizeable chunk of shoppers you’re missing out on.
Modernizing your payment process with an online payment system is the best way to ensure that your business is ready to accept your customers’ preferred payment types, not to mention streamlining your operation and freeing up valuable time for your team by removing manual payment processing from their workflow.
In this blog, we’re going to cover the benefits of online payment systems and how your business can implement your own to speed up payment processing to improve the customer experience.
TL;DR
- Online payment systems allow businesses to accept a range of online payment options, such as credit cards, mobile payments, and direct debit.
- Being able to accept online payments seamlessly reduces both financial and time costs for businesses, in addition to creating a more streamlined customer experience.
- Businesses can implement online payments by selecting a reliable payment services provider like Stax and ensuring their website is ready to accept payments.
What is an Online Payment System and How Do They Work?
An online payment system is a software solution that assists businesses in accepting and processing online payments received from customers. This enables merchants to accept a much broader range of payment options or currencies, rather than just accepting payments in-person or over the phone, which requires far more time and labor to execute.
With a growing number of consumers choosing to purchase goods and services online, it’s never been more important for businesses to have a secure, reliable system to accept payments. How the online payment process looks will depend on which payment method is being accepted, but usually involves the following parties:
- The customer’s bank account or wallet e.g. Amazon Pay
- The merchant account (either independently set up or via a payment processor
- The payment gateway
- Payment integrations (e.g. payment options at the checkout)
Popular Online Payment Methods
Credit cards
Often considered the original online payment method, credit cards provide a convenient option which is almost always on hand for customers.
Credit card companies such as Visa and Mastercard provide consumers with protection when shopping online in the form of fraud detection and chargebacks, as well as perks such as cashback and loyalty points.
Credit cards work by the cardholder entering details (name, card number, and expiry date) into the supplied fields at the checkout. These details are sent to the merchant’s bank account. If they are correct and the card has the necessary amount of credit available, the card issuer will approve the transaction.
Mobile payments
A mobile payment is a type of digital payment made using payment details stored on a mobile device. Mobile payments replace the functions of a credit or debit card by storing and tokenizing these details via an app or digital wallet. When a customer wants to make a purchase online, they simply select their chosen mobile payment option at the checkout, such as Google Pay or Apple Pay, and select which card from their wallet they would like to use.
Mobile payments are an extremely secure option because the actual card details are never shared with online payment platforms. Instead, merchants receive an encrypted account number during credit card processing, which can only be unlocked by the card network. This means that in the case that an eCommerce platform is hacked, none of the information is useful to fraudsters.
Direct debit
Similar to ACH payments, direct debit is a useful payment method for businesses that are offering products or services on an ongoing basis, such as subscriptions or replenishments. When customers sign up for direct debit, they don’t need to remember to make a payment on a specified date; it’s taken out of their bank account at regular intervals. It also means that businesses don’t have to waste valuable time chasing up invoices or late payments.
Buy Now, Pay Later (BNPL)
As online shopping has taken off, Buy Now, Pay Later has filled the gap between credit cards and direct debit options by offering deferred payment plans on purchases. As of 2022, there are over 360 million people worldwide using BNPL services.
With BNPL, consumers only have to pay for a percentage of their shopping cart up front, with the remainder paid off within either a fixed period or a specified number of payments. This service can help merchants to boost sales and increase Average Order Value but does involve higher transaction fees than regular online payments. Popular BNPL services include Afterpay, Klarna, and QuadPay.
Benefits of Online Payment Systems
Streamlining the eCommerce experience
Being able to accept online payment methods quickly and easily offers huge convenience to your customers. Otherwise, you’re relying on customers picking up the phone to place an order or walk into a shop location – something that busy consumers simply don’t have time to do.
Today’s shoppers expect to browse and shop online with their favorite eCommerce businesses 24/7. But this is only possible if your online store is capable of processing payments on-site or via a payment gateway. Otherwise, favored types of payment like credit cards or PayPal are off the table.
Reduce costs
Sending and processing paper invoices and checks isn’t just inefficient; it’s expensive for small businesses. Not only are there the material costs of printing and postage, but the opportunity costs of chasing up payments or errors that can seriously affect cash flow. Moreover, manual payments make it far more difficult for business owners to get a quick overview of what’s going on. Any reports on sales, subscriptions, or cash flow have to be generated by hand and are vulnerable to data entry mistakes.
With an online payment system, these financial and labor costs can be reduced massively thanks to the automation of the billing process. Instead of focusing on what’s happening at the point of sale (POS), you can turn your attention to other parts of your business.
Increases customer retention rate
When customers are satisfied with their experience at a retailer, they’re far more likely to shop with them again in the future. Moreover, returning customers spend an average of 33% more with every order compared with first-time customers.
As the final stage of the purchasing journey, shoppers are likely to remember their experience at the checkout – especially if they had any difficulties entering credit card information or opening a digital wallet. Any issues involving money are time-consuming and stressful, so consumers are likely to steer clear of that online business in the future.
Offering a seamless and intuitive online payment solution helps customers to build trust in your business and its payment processing service, boosting the odds of them returning to your online store for fresh purchases.
Low-risk payments
Using an online payment provider with full PCI compliance protects your business against a customer’s payment going astray or their data being intercepted by a nefarious third party. Unlike an in-person payment involving cash or a check, payment information from debit or credit card payments can’t be lost or stolen. This is because most payment processors use technology such as tokenization to encrypt credit card transactions, meaning the information isn’t usable.
Saves time
The self-service nature of online payments means that merchants don’t have the spend valuable time processing payments independently. Once a customer brings their online shopping cart to the checkout, all they need to do is choose their favored payment option and provide the required details. This allows shoppers to complete their purchases according to their schedule, and for businesses to reduce their workload by giving up sale-to-sale management. When payments are quick and painless for both parties, this creates better business outcomes.
How To Implement an Online Payment System
Choose a good payment service provider
Finding a reliable payment provider is essential to make accepting payments as seamless as possible for your business. The role of a payment provider is to handle each stage of the payment process, from when a customer provides their details to when funds arrive in your merchant account. This means that instead of processing transactions manually, your business can focus on providing a great product or service.
Here are a few things that businesses should consider when searching for a payment service provider:
- Accepting various modes of payment
- Pricing structure
- PCI compliance
- Open API for easy integration
- Additional tools (e.g. sales analytics, recurring billing, invoicing, loyalty management)
Stax offers businesses a convenient, all-in-one online payment solution that does far more than just process payments. With Stax, merchants can access full wraparound support for their eCommerce operation, including one-click payments, customizable batch times, and integrations with top gateways like Shopify and Authorize.net – all for one inclusive monthly fee.
Get a website that allows users to initiate the transaction process
Sending customers away to an external website or payment gateway might be convenient for your business, but it represents a disruption to the customer experience. Some shoppers might get suspicious if the payment takes place off your website, which can lead to high levels of cart abandonment.
The best way to avoid this outcome is to ensure that your website is capable of initiating and processing payments directly. Make sure that your chosen provider uses SSL encryption technology for the most secure transactions. Shopify, Squarespace, and BigCommerce are popular eCommerce platforms with payment capabilities to consider.
Connect your website to an online payment system
Once you’ve sorted out your website and set up a dedicated payments page, you need to connect your website to your chosen payment processor and payment gateway. Most payment service providers offer integrations with all the major eCommerce platforms such as Shopify and BigCommerce, making this process easy and seamless.
Once you’ve done this, all your customer needs to do is head to your payment page and submit their payment information via the payment gateway. Your payment processor will handle the rest of the process and ensure a smooth payment collection from the customer’s account.
As retail becomes increasingly digitized, businesses need to be at the forefront of technological change in accepting the latest and greatest payment options from their customers. Offering a seamless payment experience ensures not only ongoing cash flow for your business but positive shopping journeys that bring customers back to your brand again and again. By choosing a strong payment services provider like Stax, your business can be confident in offering a secure and reliable online payment system.
Quick FAQs about Online Payment System
Q: What is an online payment system?
An online payment system is a software solution that enables businesses to accept and process payments over the internet. This system allows for a variety of payment methods, including credit cards, mobile payments, and digital wallets, streamlining transactions for both merchants and customers. Online payment systems are crucial for businesses looking to expand their payment options beyond traditional methods like cash or checks.
Q: How do online payment systems work?
Online payment systems typically involve several components, including the customer’s bank account or digital wallet, a merchant account, and a payment gateway. When a customer makes a purchase, their payment information is securely transmitted through the payment gateway to the merchant account, where the transaction is processed and funds are transferred.
Q: What are the benefits of implementing an online payment system in a business?
The benefits of an online payment system include increased convenience for customers, reduced transaction processing time, and lower operational costs due to automation. Additionally, these systems enhance security through encryption and tokenization, reducing the risk of fraud and data breaches.
Q: What are some popular online payment methods?
Popular online payment methods include credit and debit cards, mobile wallets like Apple Pay and Google Pay, direct debit, and Buy Now, Pay Later (BNPL) services such as Afterpay and Klarna. These methods cater to diverse customer preferences and enhance the checkout experience.
Q: How can a business implement an online payment system?
To implement an online payment system, a business should first select a reliable payment service provider that offers the necessary features and security. The next step is to ensure the business’s website can initiate and process payments directly, using SSL encryption for secure transactions. Finally, integrating the chosen payment processor with the website’s payment gateway will complete the setup.
Q: What should businesses consider when choosing a payment service provider?
When selecting a payment service provider, businesses should consider factors such as the variety of payment methods supported, pricing structure, PCI compliance, ease of integration through open APIs, and additional features like sales analytics and loyalty management.
Q: How do online payment systems improve customer retention?
Online payment systems enhance customer retention by providing a seamless and secure checkout experience. When customers find it easy and safe to pay, they are more likely to return for future purchases, boosting loyalty and increasing the average order value.
Q: What security measures do online payment systems use to protect transactions?
Online payment systems employ various security measures, including encryption, tokenization, and compliance with PCI DSS standards. These technologies protect sensitive customer data during and after transactions, minimizing the risk of fraud.
Q: Why is it important for a business to keep up with technological advancements in online payments?
Keeping up with technological advancements in online payments ensures that a business can offer the latest and most secure payment options, meeting customer expectations and maintaining a competitive advantage. This adaptability also supports ongoing cash flow and enhances the overall shopping experience.
