Online payment systems: Differences and functions


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  1. Introduction
  2. What is an online payment system?
  3. What is e-commerce?
  4. What online payment systems exist?
  5. How can businesses select the right payment systems?
  6. How secure are online payment systems?

In 2022, 91% of internet users made purchases online. In Germany, around 40 payment systems are currently used for online shopping. However, most customers only use one section of these systems. In this article, you will discover what online payment systems are and what types are available, as well as which payment systems are used most frequently in e-commerce. We also explain how you can choose the right payment systems for your business, and which security mechanisms exist to protect your business.

What's in this article?

  • What is an online payment system?
  • What is e-commerce?
  • What online payment systems exist?
  • How can businesses select the right payment systems?
  • How secure are online payment systems?

What is an online payment system?

An online payment system, also referred to as an "online payment process" or "online checkout system", refers to all forms and processes that are used to transfer money between two parties in e-commerce. It encompasses all the technical and non-technical processes that are used to enable such transfers. The selection of cashless payment systems on offer is extensive. Of these, payment on invoice (23.8%) and PayPal (29.6%) are among the most popular online payment systems in Germany. However, mobile payment via digital wallets is becoming increasingly popular. Online payment systems provide businesses and customers with a convenient, quick and secure method for conducting payments. In addition, data on customer purchasing behaviour can be analysed, enabling offers to be aligned more closely to their needs.

What is e-commerce?

E-commerce is short for "electronic commerce" and refers to the sale of goods and services via the internet. E-commerce has become much more prevalent in recent years. One major advantage of e-commerce is the ability to make purchases from anywhere and at any time. In addition, deals on the internet are often better than those offered in physical shops, and prices can be compared more easily.

What online payment systems exist?

In addition to conventional payment systems, such as payment in advance, invoicing, payment on delivery or SEPA Direct Debits, payments can now also be made via digital wallets such as Apple Pay or Google Pay. Businesses can either use an intermediary service provider, known as a payment processor, or not. If a service provider is involved, then customers can also pay for goods directly via this intermediary. All they need to do is register an account with the service provider that is linked to a current account or credit card. This is the case with PayPal, for example. With online banking, customers log in to their account during the checkout process and conduct the payment from there. This is the case with giropay. One unique example is "Pay Now", as offered by Klarna, where customers log in to their online banking via this intermediary service provider.

Here is a list of the key payment systems in detail:

Pay Now (Klarna)
Customers can log in to their online banking via Klarna and conduct transfers directly. The payment information is pre-filled to enable swift processing. The money is then debited directly from the customer account and Klarna sends the business a transaction confirmation informing it that it can dispatch the product.

giropay is a payment system supported by many German banks and savings banks. When using giropay, customers need to log in to their online banking to authorise a payment. To enable swift processing, the payment information is pre-filled. The amount is then debited directly from the bank account and transferred straight to the business. The benefit of giropay is that no intermediaries are involved. In addition, payments are received quickly and the costs incurred by businesses are negligible.

Credit card
A credit card is issued with a credit limit for the cardholder's use. When paying, the corresponding amount is deducted from the credit limit to be paid back at a later date, usually at the end of the month.

To make credit card payments online, the customer needs to provide their 12-digit or 16-digit number, the expiry date and the 3-digit security code on the back. After that, further authorisation takes place using the 3D Secure (3DS) process via TAN, password or fingerprint.

Nowadays, there are many providers on the market that also enable small businesses to accept credit card payments. By accepting credit card payments, you can strengthen customer loyalty and increase your sales potential.

SEPA Direct Debit
SEPA Direct Debit is a European-wide payment system that is used to simplify the processing of bank debits in the eurozone. With SEPA Direct Debit, the funds are debited from the payer's account once the latter has provided their contact details for the payment and given their consent to the SEPA Direct Debit mandate, and the customer's bank has verified and approved the direct debit. This payment system is particularly beneficial for recurring payments, such as membership fees or subscriptions, as it reduces the amount of manual processing required for both parties.

PayPal is an online payment service that enables online payments to be conducted quickly and securely. With PayPal, customers can pay by credit card, in instalments, by direct debit, by bank transfer or using PayPal credit. In addition, payments are also possible even if you do not have your own PayPal account. Customers without a PayPal account need to select PayPal at the checkout, choose their preferred payment method and then enter their credit card or bank details. If customers have a PayPal account, they can pay in online shops using one-click checkout.
With this system, payment details are always transferred in an encrypted format and the business is credited the money directly into its PayPal account immediately after the payment is made. In addition, PayPal also offers buyer protection, shielding customers from fraud or unauthorised debits. Businesses profit from rapid processing and increased sales potential.

Payment by invoice
Payment by invoice is one of the most convenient online payment systems. It enables customers to receive their order first and then settle the invoice within a defined period of time, which is typically 14 or 30 days. The biggest advantage for customers is that they do not need to pay for their orders immediately, which increases customers' confidence in the business, particularly when buying from them for the first time.
Payment on invoice is a good option for businesses to gain new customers and generate more sales. However, one consideration here is that businesses need to have confidence that their customers will pay. In addition, payment on invoice can also be associated with a certain amount of time and effort in terms of settling the payment and issuing any subsequent payment reminders or even warning letters.

Amazon Pay
Amazon Pay is the online payment service offered by Amazon. Using Amazon Pay, customers can make payments securely and easily on third-party websites. The benefit for customers is that they do not need to register with another payment provider, but can instead use their existing Amazon customer data.
Businesses benefit from the confidence that their customers hold in the Amazon brand. Amazon Pay offers numerous benefits, such as a high degree of security for customers and businesses, as transactions are conducted via an encrypted connection and customer data is protected at all times. Integrating Amazon Pay is simple and uncomplicated.

Apple Pay
Apple Pay is one of the most modern and secure payment methods available in e-commerce today. It takes the form of a digital wallet, enabling customers to make online payments conveniently and securely. Apple Pay functions in a similar way to mobile payment solutions, where customers enter their payment information in the app through which they wish to make a payment. A secure token is then sent to the business, which can then be used for payment.
The major benefit of Apple Pay is its security. No sensitive data such as credit card numbers are transferred, so there is no risk that information might be stolen. Instead, Apple Pay generates a new token for each transaction, guaranteeing security. Another bonus is that it is easy for businesses to integrate.

Google Pay
Google Pay is another digital wallet that enables users to make payments quickly and simply via their smartphone. The app is linked to various cards and bank accounts, and enables payments to be made at numerous businesses as well as online. In this process, credit or debit card data are stored in the app in an encrypted format, so that no sensitive information needs to be divulged during the checkout process.
The swift and uncomplicated processing of payments can generate greater customer satisfaction for businesses and even lead to higher sales as a result. For users, Google Pay also comes with a high security standard, as the encryption of card data ensures that it cannot be stolen or misused. Furthermore, customers also need to unlock their phone when making high-value payments.

Advance payment
In the case of advance payment, the customer has to transfer the payment price before the goods can be dispatched. For many online merchants, advance payment remains a popular payment option as it minimises the risk of default, provides security and facilitates planning.
Advance payment also offers customers an advantage as they often benefit from a discount offered by many merchants for this form of payment.

Payment on delivery
Payment on delivery is one of the oldest methods in e-commerce and enables customers to make payment directly to the dispatcher. With this method, customers need to pay the invoice value on delivery to the delivery company or the postal carrier. This incurs an additional charge.
One of the many benefits of payment on delivery is that it increases security both for the merchant and the customer. The customer benefits from the guarantee that they only pay for items that have actually been delivered to them, and which arrive in good condition. Because no advance authorisation is required, it is a very efficient system and has no impact on the lead time for dispatching products or delivering services.

Vouchers are a popular payment system in e-commerce and can be obtained by customers in the form of credit or gift cards. They enable businesses to advertise their products and services, and to gain customers or secure their loyalty. Vouchers and gift cards benefit businesses in that 52% of customers order items that cost more than the value of their gift card, so gift cards often generate additional sales. In addition, gift cards also ensure that customers return, as 13% of customers only redeem part of their gift card's value during their first visit.

How can businesses select the right payment systems?

Businesses should always offer various payment options to attract a broader customer group, as a smooth payment process contributes to a positive customer experience. In fact, 82% of all German customers would cancel their purchase if their preferred method of payment were not available. As a result, you should always try to ensure that your customers can conclude their orders quickly and conveniently using their preferred payment method. This will not only give you customer satisfaction, but will also carve out a decisive advantage over your competitors and achieve a higher conversion rate.

When selecting the payment system for your online shop, you should take into account the needs of your customers. However, different payment systems tend to be preferred depending on the country or region. If you offer a wide range of options, your customers can select the payment process that best meets their specific needs. This leads to a higher level of trust and ultimately cultivates customer loyalty. In addition, it also helps you to expand into new markets and gain new target groups. Irrespective of whether your customer base is local or international, the more payment systems you offer, the greater your potential market share will be.

Moreover, you should examine the costs of the various processes up front, as most providers charge fees. Some fee structures will offer you more advantages than others. Other considerations to take into account are the amount of processing you need to do for each system, and how long you need to wait before you receive payment from each system. You should also check whether the systems offer benefits to the customers, such as discounts or bonus points, giving them even more incentive to spend their money with you.

If you would like to find out how Stripe can support you in selecting the right payment systems for your target group and integrating them into your shop, please contact our sales team.

How secure are online payment systems?

According to consumer organisations, payment on invoice is the most secure online payment system. However, modern encryption and security protocols have ensured that online payment systems are extremely secure nowadays. In addition, security standards such as 3D Secure processes and two-factor authentication also exist, where customers need to identify themselves in two ways (e.g. password and fingerprint, or PIN and SMS). This protects customers against fraud when making payments online.

Other methods, such as the use of tokens or virtual funds, offer a high degree of security. Tokens are unique digital codes that can be used instead of credit card numbers to prevent fraudulent actors from attempting to steal actual credit card information. Virtual funds can be linked to your bank account or credit card and are even more secure than conventional payment methods.

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