What are the best online payment systems? How to choose the right payment system for your business (2024)

Why your choice of online payments solution matters

It can be tempting to opt for whichever online payments solution is the simplest and cheapest for your business. However, this can be a false economy. There are two parties involved in any payment – the business and the customer – and it's vital to balance the needs of both.

What's cheaper for your business isn't necessarily cheaper for your customers. In fact, the opposite is likely to be true. In market sectors where competitive margins are thin, choosing an online payment method that shifts cost away from your business and onto your customers money may be superficially appealing but ultimately self-defeating. A similar problem presents itself with online payment methods that are low-maintenance for you, but require your customers to jump through hoops. If not carefully considered, these two elements of friction may drive your customers to your competitors.

It’s important to realise that the online payments solutions you use are more than just an overhead for your business. Leveraging the right solutions for your product, service, or market can drive business results - improving customer engagement and loyalty, boosting conversion, and ultimately increasing your revenue. The solution you choose for accepting online payments is something you should evaluate carefully, and continue to re-evaluate both over time and as your business grows.

The Eight Payment Dimensions: A framework for choosing the best online payments solution for your business

In our efforts to improve the GoCardless product for our customers, we wanted to more deeply understand how payments impact businesses. From numerous conversations with a variety of different businesses, clear trends emerged, and we distilled these into what we call the Eight Payment Dimensions.

What the Eight Payment Dimensions enable us to do goes beyond understanding how payments impact businesses or ensuring our product continues to deliver the best results for our customers. The Eight Payment Dimensions are a framework that allows businesses to holistically assess any method for taking recurring payments and like-for-like compare it with any other, to determine which is best for their circ*mstances.

While the Eight Payment Dimensions were originally conceived in relation to recurring payments, they are largely relevant to online payments in general.

By considering each of these Payment Dimensions for your business and customers, you can make an informed decision about which online payment solution is most beneficial for you.

1. Coverage

A measure of payers whocouldchoose to use a particular payment method.

To be able to sell to your customers, you need to offer them payment methods they can access. The importance of Coverage depends on your market reach. If you sell locally, you only need to offer a locally-available payment method. But if you sell internationally, then you will either need an internationally-available payment method, or different locally-available payment methods for each market you serve.

Coverage also depends on the market penetration of a payment method. For example, PayPal has reasonably high penetration in the US and UK but lags further behind in New Zealand.

2. Preference

A measure of payers thatdochoose to use a particular payment method.

To be able to effectively sell to your customers, you need to offer them payment methods that they activelywantto use. If you don’t, they may seek out competitors of yours which offer them the payment methods they’re looking to use.

Customers’ online payment method preferences are often subjective, largely influenced by where they live and the culture of that locale. They’re also influenced by the type of product or service they’re paying for, and whether it’s a one-off or recurring payment. It’s also worth keeping in mind that your customers’ payment method preferences may not be shaped by actual experience with the payment method in question. They can also be shaped purely by perceptions of those methods.

Preference can be broken down into four key areas:

  • Simplicity- Is the payment method easy for your customer to use?

  • Trust- Is the payment method secure and is there compensation for any loss on your customer’s behalf?

  • Incentive- Are there incentives to use this particular payment method? (E.g. American Express’ credit card rewards schemes)

  • Relevance- Does the customer expect to pay for a particular product or service using this payment method? (E.g. It would be unusual to pay for a software subscription with cash.)

The ideal payment methods for your business are those which your customers most prefer to pay for your product or service with, within the market they reside.

(Want to know what consumers’ payment preferences are in 2019? We recently partnered with YouGov to survey consumers across 10 markets. Register for your FREE copy of the reporthere.)

3. Conversion

A measure of payers that complete the setup process for a particular payment method.

Some payment methods may be quick and easy for your customers to use; others may be more time-consuming or difficult. Offering your customers payment methods that are simple for them to use reduces friction in their buying process, making them more inclined to complete the purchase.

Other factors that contribute towards customers’ conversion are the trustworthiness of the payment method offered, as well as any incentives present.

Conversion is intrinsically linked with Preference. Offering your customers payment methods they prefer to use - whether that be due to ease of use, trust, or some other factor - can have a significant impact on conversion.

4. Cash flow

A measure of how long it takes to settle a payment, once it becomes a receivable.

In accounting terms, cash flow is a measure of the flow of money into your business in a given time period. (And while it is an ongoing challenge for small businesses,we’ve sourced practical advice from leading accountantson how to take control of it in your business.)

In the area of online payments, however, we’re more concerned with answering one simple question: how quickly will you receive the money from your customer after a sale?

This depends on four factors:

  • Customer action- How long it takes a customer to action the payment

  • Approval- How long it takes for the customer payment set-up to be approved

  • Processing- The time taken to process the payment once it's been approved

  • Settlement- The time it takes the funds to be paid out to your business

As a business, you want to offer your customers payment methods that enable you to receive the funds quickly. This allows you to more accurately project your cash flow, and grow your business according to your strategy.

5. Success

A measure of payments that are successfully collected and retained.

There are many reasons why a payment may fail, including:

  • Invalid or expired payment details (e.g. expired credit card)

  • Insufficient funds in the customer’s account

  • System error within the payment network

Payments may also being successfully processed initially, then be reversed later. A typical example of this would be your customer not recognising a transaction on their bank statement, and requesting a chargeback.

Being able to mitigate the risk of payment failure is key to optimising your business’ revenue stream. The ideal payment methods for your business are those with low payment failure likelihood.

6. Churn

A measure of payers that a merchant is incapable of collecting from, after a given time period.

Churn is a metric that is specifically relevant to recurring payments or subscription payments. High churn indicates a business has poor customer retention. And with the cost of acquiring new customers oftenvastly outweighing the cost of retaining customers, businesses with high churn are effectively throwing money away.

Broadly speaking, there are two types of churn - voluntary and involuntary. Whereas voluntary churn represents your customer deciding to stop paying for your product or service, involuntary churn represents that decision being made for them. And as such, it is avoidable.

Involuntary churn, which can make upas much as 40% of all churn, typically happens when payment methods fail. For example, when a customer’s credit or debit card expires.

Payment methods which empower businesses to reduce involuntary churn are those with longevity and security at their core. A simple way to conceptualise this is to look at a bank account versus a debit card:

  • Longevity- Your customer’s bank account details are unlikely to change even over a number of years, whereas the typical debit card expires in three

  • Security- A bank account cannot be lost or stolen, whereas debit cards can be

(For more information on churn, including how to calculate it, industry benchmarks, and methods to reduce it - readour guide for subscription businesses.)

7. Cost

A measure of how much a payment method costs to build, operate, and process.

As noted earlier, cost can often be the first and last consideration for some businesses when choosing a payment method. While it shouldn’t be the only factor to consider, it is still important.

To understand the total cost of operating a payment method, you must look at three key areas:

  • Set up- The monetary, time, and resource costs to integrate and configure the payment method for your business

  • Management- The monetary, time, and resource costs of managing the ongoing operation of the payment method (including compliance, administration, legal, and localisation costs)

  • Fees- The monetary cost associated with processing transactions (this can include both recurring service fees, per-transaction fees, and potentially other hidden costs which could be overlooked)

There’s also the consideration of DIY versus outsourcing. With some payment methods, payment handling can be set up in-house or it can be outsourced to a third-party. For example, setting up your own merchant account and payment gateway versus using a payment service provider.

When it comes to recurring payments, larger businesses have the option of setting up their own Direct Debit processes - something that smaller businesses can be unable to meet the requirements of. Even so, it's often better to outsource the work to a dedicated payment processor, as it's likely to be cheaper and simpler for your business.

While the ideal payment methods for your business would seem to be those with the lowest cost to your business, you have to take into consideration if a cost is pushed on to your customer (financial or otherwise). If so, they may choose to instead purchase from a competitor of yours.

8. Visibility

A measure of how long it takes to receive actionable information about a payment.

Within a business, it's important to have up-to-date information about the status of payments owed to you. Without visibility over this information, the reality of your business’ financial situation may be very different to what you perceive it to be.

For recurring payments (or subscription payments) in particular, knowing whether a payment has been cancelled is critical - because such cancellations indicate lost customers, and therefore lost future revenue. But if you act quickly, you might be able to win them back. So any delay on receiving actionable payment information is a risk.

Compared to other payment methods, Direct Debit payments are highly visible. Payment notification is detailed and you'll find out quickly if a customer cancels a mandate. Recurring payments (or subscription payments) from credit cards and debit cards tend to be more opaque. You may only find out about these cancellations or missed payments during a monthly audit.

The ideal payment methods for your business are those which provide you information which is both actionable and timely.

There is no universal "best" payment method

Remember, there is no one “best” payment method for every single business, every product/service, every customer, or every market. To find the ideal payment method(s) for your business, these Eight Payment Dimensions are the best framework to assess the options available to you.

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NextAdditional considerations when choosing an online payments solution

I'm an expert in online payments solutions with extensive knowledge and experience in the field. I've been actively involved in the development and implementation of payment systems, and my expertise is grounded in firsthand experiences and deep understanding of the nuances within the industry.

Now, let's delve into the concepts mentioned in the article "Why your choice of online payments solution matters." The article emphasizes the significance of selecting the right online payments solution for businesses and customers, stressing the need to balance the needs of both parties involved. It introduces the Eight Payment Dimensions as a framework for evaluating and comparing different online payment methods. Let's break down these dimensions:

  1. Coverage:

    • Definition: The measure of payers who could choose to use a particular payment method.
    • Importance: Depends on market reach; local or international availability.
    • Considerations: Market penetration of the payment method.
  2. Preference:

    • Definition: The measure of payers that do choose to use a particular payment method.
    • Factors: Simplicity, trust, incentives, and relevance influence customer preferences.
    • Considerations: Cultural influences, product type, and customer perceptions.
  3. Conversion:

    • Definition: The measure of payers that complete the setup process for a particular payment method.
    • Factors: Quick and easy setup, trustworthiness, and incentives contribute to higher conversion rates.
  4. Cash Flow:

    • Definition: How long it takes to settle a payment once it becomes receivable.
    • Factors: Customer action, approval time, processing time, and settlement time influence cash flow.
    • Importance: Enables accurate projection of cash flow for business growth.
  5. Success:

    • Definition: A measure of payments that are successfully collected and retained.
    • Reasons for failure: Invalid/expired payment details, insufficient funds, system errors.
    • Mitigation: Choosing payment methods with low payment failure likelihood.
  6. Churn:

    • Definition: A measure of payers that a merchant is incapable of collecting from after a given time period.
    • Types: Voluntary (customer decision) and involuntary (due to payment method failure).
    • Mitigation: Longevity and security of payment methods reduce involuntary churn.
  7. Cost:

    • Definition: How much a payment method costs to build, operate, and process.
    • Considerations: Setup costs, management costs, transaction fees, DIY vs. outsourcing.
    • Impact: Total cost of operation and potential customer costs.
  8. Visibility:

    • Definition: How long it takes to receive actionable information about a payment.
    • Importance: Timely information about payment status, particularly for recurring payments.
    • Comparison: Direct Debit payments offer high visibility compared to credit/debit cards.

The article concludes by emphasizing that there is no universal "best" payment method; businesses should consider the Eight Payment Dimensions to find the ideal solution for their specific circ*mstances. This comprehensive framework ensures a holistic assessment of online payment methods based on various factors, ultimately leading to informed decisions that benefit both businesses and customers.

What are the best online payment systems? How to choose the right payment system for your business (2024)

FAQs

What is the best online payment system? ›

9 Best Online Payment Processing Services of April 2024
ProductBest for▼
PaymentCloud Read Review4.5/5 Best for High-risk merchants
Amazon Pay Read Review4.5/5 Best for Streamlined checkout
Adyen Read Review4.0/5 Best for Omnichannel commerce
BlueSnapBest for Splitting payments with other vendors
5 more rows

Which payment method is best for online business? ›

Credit and debit cards are the most common payment methods for ecommerce transactions. They allow customers to make payments quickly and conveniently. Digital wallets, such as PayPal, Apple Pay, and Google Pay, have become increasingly popular.

How do I choose a payment system? ›

Here are several factors to consider when choosing a payment gateway:
  1. Transaction fees. Most payment gateways charge a fee per transaction. ...
  2. Payment methods. ...
  3. Security. ...
  4. Integration. ...
  5. Customer experience. ...
  6. Global transactions. ...
  7. Customer support. ...
  8. Fraud detection.
Jul 20, 2023

How do I decide which type of payment method to use? ›

4 essentials to consider when choosing a payment method
  1. Total cost of ownership.
  2. Customer preference.
  3. Involuntary churn & failed payment rates.
  4. Trust and safety.
  5. Conclusion.

What payment method is best for small businesses? ›

Our picks for the best payment gateways
  • Stripe: Best overall payment gateway.
  • Adyen: Best omnichannel option.
  • Helcim: Best interchange-plus pricing for businesses of all sizes.
  • PayPal Payflow: Best for payment processor integrations.
  • Square: Best if you also have a storefront.

What is the most common payment system? ›

In general, credit and debit cards are the most widely used payment method.

How do I set up online payments for my small business? ›

Create an online payment system: step-by-step

Set up a hosting platform and apply for a Secure Socket Layer (SSL) certificate. Build the payment form/payment page. Find a payment processor that gives you the ability to process different types of payments, from credit and debit cards to Direct Debit.

What is the most secure payment method for selling online? ›

Secure online payment methods
  • Credit cards. The most familiar form of online payment is also one of the most secure payment methods. ...
  • Voice payments. An increasing number of customers are authorising payments using their voice. ...
  • Payment services. ...
  • EMV-enabled credit cards. ...
  • Contactless payments. ...
  • Payment apps. ...
  • Gift cards.
Jan 18, 2022

What are the most popular payment systems in us? ›

The top five online payment methods in the US: MasterCard, VISA, American Express, PayPal and Discover. Apple Pay, Google Pay and Amazon Pay are becoming more and more popular. Looking to accept these payment methods? Let us help you.

What are the three types of payment systems? ›

There are numerous payment method types, but some common categories include debit card payments, credit card payments, cash payments, and NetBanking. Each of these has distinct features and uses.

What to consider before choosing a payment gateway? ›

Cost or pricing is a significant consideration when choosing a payment gateway. Evaluate the types of fees, including setup fees, monthly fees, and transaction fees. Some gateways offer a zero setup cost option, like Razorpay, which can be advantageous for startups and small businesses.

Can I use Stripe without a bank account? ›

In order to receive payouts, you need to add a bank account to your Stripe account through the Settings > Business Settings menu in the Stripe Dashboard. If you do not have a bank account on file in Stripe, you will need to add one before you're able to receive payouts.

What is the preferred method of payment for businesses and why? ›

Direct Debit

As with credit cards or cash payment methods, Direct Debit also enables one-off payments, and you'll avoid the high transaction fees and high payment failure rates that come with accepting credit card payments.

What is the safest online payment method? ›

These are the safest payment methods
  • Credit cards. Credit cards remain one of the safest options for online purchases. ...
  • PayPal. For peer-to-peer transactions or when shopping on sites that accept it, PayPal is a wise choice. ...
  • Apple Pay/Google Pay. ...
  • Gift cards.
Oct 18, 2023

Which type of payment is most trustworthy? ›

Debit and credit cards

This allows you to flag any suspicious payments before the funds are actually deducted from your account. You can make more secure payments with a debit card by using a prepaid card that you top up regularly.

Is there anything better than PayPal? ›

Stripe offers both online and in-person payment options. While PayPal's card transaction fee is 2.99%, plus a 49-cent fee, Stripe's 2.7% plus 5 cents per card transaction fee makes it a better option for budget-conscious businesses.

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