As our modern world evolves, we understand that money still makes the world go round, but the way in which our money is processed, transferred and stored continues to progress ever so rapidly.
When it comes to different payment methods, it’s imperative for businesses owners - especially first-time small business owners - to understand the pros and cons of different payment methods to ensure they are not putting their business at any unnecessary risk.
Apart from the obvious option of the traditional cash payment, we’ll talk you through the most popular payment methods your business should know about and what potential benefits they can offer.
We’ll ease you in with one we are certain you’re familiar with and which is arguably the most popular method of payment across the United Kingdom.
Whether it’s paying for a food shop or buying the latest pair of trainers, debit card payments (not direct debit bank transfers) are one of the fastest and most secure ways to spend your money without having to carry wads of cash.
The most common debit card service providers belong to stalwarts: Visa, Mastercard and Maestro.
Coronavirus has highlighted the significance of debit card payments as an alternative to cash payments due to its quick, hands-free capabilities.
Similarly, your business should be capable of processing credit card payments.
The three most popular credit card issuers are Visa, Mastercard and American Express. Although all three are classed as payment processing systems, Visa and Mastercard do not issue credit cards to consumers directly. Instead, they leave it up to banks and financial institutions to issue their cards.
Consumers are often keen to pay by credit card due to the protection they receive for high ticket items under the section 75 protection law. Also known as ‘chargebacks’, this hidden protection means you’re almost guaranteed to get your money back if you don’t receive your goods or service.
Contactless payment services have taken the world by storm over the last decade thanks to their efficient and speedy processes.
We all go through our day-to-day lives tapping away, but how does contactless work exactly?
Contactless card readers establish a connection with a contactless card through smart technology known as RFID.
All contactless cards have a small microchip inside them that’s capable of emitting waves which allows the card reader to send the transaction details back and forth to the card, which is followed by the merchant’s payment processor authorising the payment.
The one major downside to contactless technology is that there is no way to stop a thief using your card if you happened to misplace it which is why there is a £45 limit to all contactless card transactions.
Cheques are dropping in value all the time, and their outdated, long-winded process can’t compete with the modern payment systems currently in place - but some customers still prefer them.
Cheques are notoriously risky as businesses are reliant on the customer having the sufficient funds in their account or the cheque will bounce. You should be wary of accepting cheques from customers you don’t know to avoid any fraudulent activity.
E-Wallets or digital wallets have become a painless way for customers to store their personal data and funds so they don’t have to re-enter their bank details everytime they want to make an online purchase
Signing up for an e-wallet is completed in a couple of easy steps, and customers can store their information for a quicker checkout process in the future.
Another bonus is that e-wallets can sync with mobile wallets through smart technology which means customers don’t have to lug their laptops around to access their e-wallets. Instead, they can just tap their phone on a Near Field Communication (NFC) terminal to instantly transfer funds from their phone.
You can check out some of the best digital wallets on offer by checking out our roundup.
Mobile payments offer a fast process for customers who want to purchase items on ecommerce business sites (Ticketmaster, Amazon, eBay etc).
Customers use an app to make mobile payments - it is an attractive payment option for countries with low credit card or banking authority.
More and more people are starting to pay for items and services via their mobile phones, so businesses have to be aware of the shift in activity and ensure they don’t lose customers by not offering a mobile payment service.
In-store contactless mobile payments are usually processed via a pdq machine so as long as you’ve got a payment processing system in place that accepts credit and debit cards you should be dandy.
Apple and Android Pay
Both Apple Pay and Android Pay incorporate the same RFID technology that is used to process contactless payments.
Apple Pay and Android Pay are both examples of NFC payment apps - as are similar payment services such as Samsung pay and Google pay.
Once customers have stored their debit or credit card details into their relevant ‘e-wallets’ they can pay for items using RFID technology that has been incorporated into the phone.
To initiate NFC payments for services like Apple Pay and Android Pay, customers hover their phone over the contactless reader while pressing their fingerprint on the home button at the same time.
As a fingerprint is required to authorise the payment, it’s important to realise that consumers aren’t limited to the £45 contactless cap as there are additional security features involved in the process.
Biometric payments aren't very commonly used, but most mobile smartphones have biometric technology in order to unlock the device. Many apps, like banking apps, require biometric approval in order to access the data stored inside.
Biometric technhology is an incredibly secure way of verifying payments. It cannot be easily forged and it's also a very quick, convenient way of making purchases, on and offline!
One for the future perhaps?
The value of Bitcoin and other cryptocurrencies is still in high demand despite the market crashing earlier this year.
Bitcoin is still viewed as a volatile investment for most consumers, but there may be a few doing some late night research and buying some digital currency while prices are low.
Prepaid cards are an alternative payment method which can be used by customers who don’t have their own bank account.
Whether it’s a £50 gift voucher for video games or a sports club membership card, prepaid cards can be used to pay online, using chip & pin or contactless.
You won’t have the risk of running into credit difficulties or overdraft charges with a prepaid card making them ideal for minors.
With a lot of companies limiting their face-to-face contact with customers these days, phone payments have made an honourable comeback.
Phone payments are regularly adopted by service providers such as insurance or gas and electricity companies where payment information can easily be taken over the phone.
They’re a great way to accept payments from afar and businesses can process the payments by entering the customers details into a virtual terminal.
Making payments via email is another effortless way for customers to pay for goods/services online.
PayPal - the world’s leading online payment system - uses email addresses to send and receive payments globally.
Pay by link is a great payment option for businesses who specialise in email marketing as it allows customers to pay for goods by opening a link in the email that has taken them to a secure payment page where they can complete the transaction without any hassle.
It’s important that your email containing the link looks authentic to avoid customers being hesitant in handing over their personal details.
Automated Clearing House (ACH) payments - also known as ‘direct payments’ - are an alternative payment method that allows money to be transferred from one bank account to another without using any credit card processing networks or wire transfers.
The United States-based financial network enables bank accounts to connect with billing accounts so payments are made automatically.
ACH payments suit businesses who are constantly making recurring payments and is often used by companies when paying their employees
Benefits of Payment Methods
Offering a wide array of payment methods may not be the most cost-effective practice for your business, but you don’t want to be a one-trick pony either.
If your business can strike a cordial balance between accepting payments that are both favoured by your customers, and align with your business model, then you’ll be on the right track.
The benefits of adopting various payment methods include:
- Widening your Target Audience - With a wider target audience, your business may be expanding into new regions where accepting local payment methods may be key to unlocking the total market opportunity. Certain payment gateways are only available to specific countries and currencies, so having these different methods will enhance your businesses global reach.
- Increase Profitability - You don’t want customers binning the items in their shopping cart if their method of payment isn’t endorsed by the company - that’s just throwing money and a potential returning customer away!
- Good Impressions & Reliability - Offering several alternative payment methods will make your online store ooze professionalism and legitimacy. Online shoppers want to feel that they are experiencing a safe and secure journey throughout the checkout process.
- Optimise Transaction Costs - Before choosing your payment methods, it’s pivotal that your business reviews the different debit/credit card processing fees attached to payment methods so that you can tailor the right one to your business. Some of the best card processing services include PayPal, Stripe, Square and Worldpay.
Choosing the Right Payment Method for your Business
Whether you’re expanding into new global markets or looking to revamp your ecommerce site, offering relevant and popular payment methods to your customers is number one priority
It may sound simple, but you’d be surprised with the number of companies that lose out on invaluable transactions because they aren’t accepting the local card in their most popular market.
Additionally, you don’t want to be the business that misses out on loyal, returning customers because your card not present transactions look unfamiliar and unsecure.
For bigger businesses, it's essential to cover all bases when it comes to payment methods. If you don’t I’m sure a competing business will be somewhere in the world.
On the flip side, smaller businesses have got to take card processing and merchant fees into account to ensure the business isn’t losing any unnecessary capital.
Nevertheless, no matter the size of your business, one thing remains the same - the customer’s payment experience must be efficient and secure or they may think twice before purchasing a product/service from you.
You can also save on your credit card processing costs if you compare with CardSwitcher - how does 40% off sound!?