How to choose your ecommerce payment methods

The world of online shopping is ginormous. The allure of infinite amounts of products from countless countries has seen millions of people engage in the activity which initially felt alien. However, whilst large amounts of goods has drawn people to an online retail experience, it has also coincided with an equally great number of payment methods arising.

After all, just like how everyone has different items they desire, they also prefer different ways to spend their money. In fact, with some ecommerce stores offering very similar – or in some cases, identical – products to buy, which payment method they offer can be the difference between closing a sale or losing one.  

Yet payment methods aren’t just about sales. Despite being crucial at checkout, they also impact ecommerce firms’ bottom line, cash flow, security, and customer insights. Ultimately, they are a crucial component for FinOps teams.

With that being the case, how can ecommerce stores make sure that they offer the correct payment methods for their business and for the financial operations? Read on to find out how.

What types of ecommerce payment methods are there?

Digitalisation of life means that possibilities increase in every direction. This is especially true when it comes to making payments. That’s why when you purchase through an ecommerce store, you are likely to find a plethora of payment options to choose from, such as:

• Credit and debit cards

• Digital wallets

• Bank transfers

• Cash on delivery

• Mobile payments

• Buy now, pay later

• Cryptocurrency

• Prepaid cards

What to consider when choosing the best ecommerce payment methods for your business

With there being 1,981 PSPs to choose from in the UK alone, the amount of payment methods out there and the variation they offer is significant. Ecommerce companies should therefore focus on what matters to most to them, assessing the merits of each payment method based on:

Customer preference

“The customer is always right” not just on price, service or product, but also payment method. The extent to which this is true is reflected by the fact that 70% of consumers look at payment methods when deciding where to shop and 11% abandon their cart if their preference isn’t available.

These are not numbers which ecommerce companies can overlook. As such, selecting payment methods for based on customer preferences is inevitably highly influential. The only problem is, how to know which payment methods are favoured by customers?

There are two main approaches to solving this problem:

• Research – good ecommerce stores place research at the heart of everything they do. It determines, what their brand looks like, the navigation of their store, the items they sell, where they advertise etc. All of this is done to ensure that they increase their chances of resonating with their target audience.
  
  Considering that factors such as where someone is from and their age can be a marker of their preferred payment method, evidently, research on this topic is also highly relevant. A good way to do so is to analyse what payment methods competitors use.
  

• Trial and error – when there isn’t time for research, or if you’re the first at doing something, the only other approach is the famous method of ‘trial and error’. Admittedly, this seems very rash considering that the average ecommerce customer acquisition cost can be up to $130 – having a sale fall through at the end due to an unoptimised checkout experience is not what any ecommerce operation wants.  
  
  In addition, incorporating a new payment method into an existing infrastructure isn’t always straight forward. It can take a lot of time and customisations. This too therefore makes ‘trial and error’ a risky approach because despite a great investment of time and resource, the anticipated benefit of a new payment method might never materialise.
  
  On the other hand; however, there is the promise of potential reward. After all, if a payment method which competitors don’t offer is adopted and it rapidly grows in popularity, new business could be secured primarily thanks to this decision.

Fees

Payments is a highly competitive space. That should be evident alone by the number of companies within the space. To survive within such a saturated market, payment firms don’t do the work that they do out of the goodness of their heart. Instead, they take fees.

Having said that, with so many payment companies vying for the same business, some believe that the fees they charge is initiating a race to the bottom. After all, if an ecommerce business can pay less to their payment partners per transaction, why wouldn’t they?  

On paper, this is a great way to protect their margins and improve the health of their bottom-line. Yet cheaper doesn’t always mean better, so whilst this is a crucial factor to consider, don’t default to payment methods with the cheapest fees without proper consideration.

Cash flow

Despite the vast amount of payment methods which exist, it isn’t an easy business to be in. This is primarily due to the various factors in play throughout a payment lifecycle. A significant impact of this is that settlement times can vary.

Often, quicker settlement times are favoured by businesses because it will allow them to be more confident in freeing up trapped working capital. Assessing this is therefore important for ecommerce firms, especially those who are looking to invest in new projects.

Security

When purchasing items online, a main concern for consumers is the possibility of fraud. However, the activity can also be a facilitator for fraud if low-quality payment methods are employed.

That’s why most payment methods now deploy 2FA. It’s a simple but effective safeguard which helps ensure that the person inputting payment details is legitimate, rather than aiming to use someone else's money.

Selecting payment methods with this safeguard is definitely a sensible choice for ecommerce firms. It protects their reputation, increases trust, and decreases their chargeback rate.

Consumer insights

Whilst it can be tricky to initially determine which payment methods are most popular with customers, learning more about customers once payment methods up and running, can become easier ... if the right ones are chosen.

Depending on how well payment methods analyse and share data, ecommerce companies can learn:

• If customers prefer to pay with cards that offer rewards, prompting them to initiate certain partnerships.
  

• If customers pay out for premium cards such as Amex Platinum, prompting them to experiment with increased prices to boost profits.
  

• Where customers have their cards issued, prompting them to invest more heavily in certain geographic areas.

Making payment methods add up with automated reconciliation

Finding your perfect mix of payment methods is strangely not all about payment methods. It is also about your financial back-office infrastructure. After all, as shown above, payment methods come in a variety of shapes and sizes. For instance, some might be harder than others to integrate with, whilst some might have longer settlement periods than others. Then there’s also the possibility of payment methods’ fees being different to how they were when you first started using them.

Collectively, all these factors will have a big impact on your reconciliation process:

• How quickly can you access data from your payment method to reconcile it?

• Will you be able to get an accurate financial position at any point in time?

• Are you seeing a high increase in exceptions, or has a payment method altered their fees without telling you?

However, it’s never the case that not all payment methods can work with your back-office. Instead, it is a case of not all back-offices can work with all payment methods.

How come? Because there is one back-office reconciliation platform proving that ecommerce firms can adopt as many payment methods as they like – Aurum.

Compatible with over 600 APIs, powered by a super-fast matching engine, and supported by an accurate fee checker, Aurum is designed to get ecommerce firms up and running with new payment methods quick and ensure that their financial position is calculated even quicker.

If you’ve been shopping around for the perfect platform to reconcile all of your payment methods, look no further and book your Aurum demo today.