Types of eCommerce Payment Systems

Types of eCommerce Payment Systems
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One of the biggest challenges associated with doing business online is collecting customer payments. Unlike a brick-and-mortar store where transactions take place in person, online customers charge purchases without presenting a physical charge card. Online merchants need secure tools for payment collection, and the tools need to work within the framework of their e-commerce website. There are several types of payment methods currently used for online shopping and bill paying.

Types of Electronic Payment Systems

The most popular e-commerce payment systems include:

  • Credit and Debit Cards: Visa, MasterCard, Discover and American Express are some of the most popular credit cards used for online purchases. Debit cards, which deduct money directly from a bank account, are used for e-commerce in many countries but are not popular in the United States.

  • Bank Transfers: Some online shopping sites allow customers to send money directly from a bank account by initiating a bank transfer. Most banks allow customers to set up one-time or recurring electronic payments for purchases and services.

  • E-wallets: This type of online payment service includes PayPal, Google Pay and Apple Pay. The service lets customers make prepayments and bank transfers to cover online payments. PayPal is the leader in this arena with more than 200 million active users. Unlike e-wallets like Apple Pay that only work on a particular brand of devices, PayPal works across all types of equipment that can access the internet.

Electronic Payment Gateways

An electronic payment gateway is a software service used by an e-commerce website to handle credit card transactions. The most popular payment gateways such as PayPal and Skrill include developer tools that programmers use to customize payments according to business requirements. Payment gateways also integrate with other software applications like QuickBooks to make it easy to track purchases.

The gateway system sends credit card transactions to the card vendor and receives a confirmation when payments are authorized. Similar to using a point of service in a retail store that handles credit transactions at the cash register, interacting with a payment gateway is typically the final part of the online purchase process. Because electronic payment gateways can't process the magnetic strip or chip on a physical credit card, there is more opportunity for fraud during the final purchase steps.

Some retail websites allow customers to store their payment information online. This convenience presents additional risks and should only be used with absolutely trustworthy stores. Even so, hacks of major online retailers over the years have exposed the personal data of millions of people.

Electronic Payment System Advantages

Electronic pay systems are part of the new reality of cashless retail that appeals to millennials and others who spend many hours per day online. They differ from traditional payment methods like cash and checks because they involve the electronic transfer of funds without human intervention. For this to work safely and securely, e-commerce systems must offer the latest in data encryption and credit card authentication technology.

Using an e-commerce payment system enables an online retailer to reach a broad audience of potential customers. Without the limitations of a physical retail store, online customers can shop 24 hours per day from almost any location. Since most purchases occur automatically, far fewer sales associates are needed.

Another significant advantage of electronic payment systems is the speed with which they conduct transactions. Once a customer decides to make a purchase, there's no need to wait in a checkout line. In most cases, online purchases made through e-commerce payment systems can be completed almost as soon as the customers enter their identification information, even if the actual charges don't appear on their credit card for one or two days.

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