Your guide to online payment methods

Payment methods have evolved significantly from the traditional ‘cash or card?’ society. To meet the growing e-commerce demand, merchants must keep up with the evolving needs of customers in diverse markets. Perhaps nowhere is this challenge more prominent – and yet more overlooked – than in the question of which online payment methods merchants should offer their customers. In order to deliver a localized checkout experience, many merchants are focused on the question of how to offer as many popular online payment methods as possible – with a need to integrate these as easily and seamlessly as possible within existing payment stacks.

How can merchants determine which payment methods to offer – and what must merchants do to ensure that they can make the most popular payment methods available to customers regardless of geography? Read on for an overview as well as an introduction to PayU’s online payment methods offering.

When customers pay for online purchases, businesses should always be mindful of the co-existence of two competing forces at work. On the one hand, e-commerce is becoming increasingly globalized – with credit cards at least somewhat prevalent in most markets around the world. At the same time, we see an exponential growth of local payment preferences, which are often geography-specific and unique to specific target markets.

It is therefore important to build an online payment methods strategy that offers the best of both worlds – encompassing a mix of common and popular global payment method options, while also offering the most important local payment methods in key target markets around the world.

The importance of local payment methods

The ability to offer local forms of payment is important for increasing customer satisfaction, reducing cart abandonments, and maximizing transaction approval rates. When expanding into new markets, a willingness to offer local payment method options is an important way that companies can localize their brand and product. In many countries, traditional credit cards and digital wallets are secondary to more popular local payment methods, which are often unique to each market.

In addition to facilitating a higher rate of checkout conversations, transactions using local payment methods often have a higher rate of acceptance since local acquirers and banks are more likely to approve payments from local customers.

The growing number of online payment methods shows the extent to which customers are increasingly open to non-traditional ways of paying. While credit cards are still the most popular payment method in many markets, a growing number of alternative payment methods are offering customers new and often more flexible ways to pay for their purchases.

Let’s dive in and explore some of the most key payment methods in the market today:

Credit Cards

• Credit cards are payment cards issued by a bank or other financial services company, giving the holder an option to borrow funds. Credit cardholders (who may pay annual service charges) draw on a credit limit approved by the card-issuer such as a bank, store, or service provider.

• In many emerging markets, local credit card issuers play a significant role in the e-commerce landscape

Debit Cards

• Debit Cards are payment cards that deduct money directly from the cardholder’s checking account. They offer the convenience of credit cards and many of the same cardholder protections.

• Unlike credit cards, debit cards do not allow the user to go into debt. In addition, debit cards often have a daily purchase limit.

• As with credit cards, in most markets local banks issue their own debit cards, creating another payment layer that the payment gateway/payment processor typically navigates on behalf of the merchant

Alternative Payment Methods (APMs)

• Alternative payment methods are categorized as non‐traditional payment methods (e.g. not credit cards or cash)

• Alternative payment methods include forms of payment such as e-Wallets (Google Pay, PayPal, Apple Pay, WeChat), bank transfers, Buy-Now-Pay-Later methods, and more.  The majority of these forms of payment can be used in both POS (point of sale) terminals (I.e., physical shops), as well as online.

• APMs work in a variety of frameworks, whether as extensions of traditional payment methods (e.g.  where they are linked to a credit card and rely on the card issuer’s approval). That said, they can also have their unique infrastructure, as a standalone solution separated from traditional frameworks.

E-Wallets

• Digital wallets (also known as e-wallets or mobile wallets) encompass different forms of software that provides the equivalent of a wallet for electronic commerce, often storing several payment methods in one place

• Key global players include many household names such as PayPal, ApplePay, Google Pay, and WeChat Pay

• E-wallets are popular all over the world – that said, many local markets have their own digital wallet products which are unique to a particular country or region. It is important for online merchants to understand which popular local e-wallets they may want to cater to within a specific local marketplace.

Buy Now Pay Later (BNPL)

• BNPL, or invoice payments, allow the merchant to be paid upfront before the customer pays for the transaction. The BNPL provider fronts the transaction amount and takes on any risk of fraud or payment defaults.

• BNPL tends to result in higher transaction values, as well as higher conversion rates at checkout. For longer installment cycles, BNPL models benefit from the use of predictive algorithms which can provide instant credit decisions within the checkout process itself.

• Invoice payments are extremely popular in much of Europe – notably Germany, Scandinavia, Austria, Switzerland and the Netherlands. In many emerging markets, BNPL acts as a means of financial inclusion, enabling people locked out of traditional credit sources to participate in the digital economy.

Bank and electronic cash transfers

• Direct online bank transfers are a popular method of payment for e-commerce transactions, particularly in Europe

• Electronic cash transfers, meanwhile, are popular in many markets with less established systems of traditional banking. In many Latin American markets, a number of popular homegrown payment methods allow customers to receive a code at checkout which can then be paid either with cash or bank transfer at a network of participating brick-and-mortar locations.

Open banking

• Open banking options have been gaining prominence in recent years and are another online payment method in which customers initiate a payment to a merchant or corporate in the same way that they would pay via bank transfer

• Payment is performed instantly via the customer’s mobile banking app or online banking portal, resulting in faster conversions and higher approvals

The ability to offer local forms of payment is critical for building credibility and trust with online customers – especially when expanding to new markets. In many countries, traditional credit cards and digital wallets such as Apple Pay and PayPal are not commonly used, or are secondary to other more popular payment options, many of which are unique to each market.

From local banks, credit cards, and digital wallets to e-commerce installments and other consumer credit options, alternative payment methods account for a significant share of overall online payment transactions in emerging markets. By using a platform that offers a wide range of local payment methods in multiple markets, merchants selling across borders can offer the payment options most preferred by consumers in each market, with higher conversion and payment acceptance rates, and lower transaction fees.

Through the PayU Hub, PayU supports all major credit cards and other common online payment methods used around the world – along with an extensive range of local and alternative payment options that will help you to reach the broadest possible share of customers in any market.