Just as a restaurant with a diverse menu can cater to different tastes and dietary needs, a business with multiple online payment methods can accommodate the diverse preferences of its customers. By offering a range of payment methods, you can ensure that every customer can find a convenient and preferred way to complete their purchase, while increasing satisfaction and the likelihood of repeat business.
The online payment landscape has seen many changes over the past 10 years. While many common choices such as credit/debit cards and BPay are widely used, newer options such as digital wallets and PayID are gaining rapid momentum.
These new payment options offer fantastic benefits for both customers and businesses in areas such as security, settlement times and international payment capabilities. Customers now expect a range of flexible payment options with 47% of online shoppers frequently abandoning a shopping cart when their preferred payment method was not available (Paypal 2022).
In this article we’ll discuss a range of online payment methods that may be suitable for your business, discussing the advantages and disadvantages of each.
Credit/debit cards – will they reign forever?
Paying via credit or debit card is one of the oldest online payment methods and many of your customers are likely to choose this method.
The Australian Banking Association found that for the year ending March 2024, spending on debit cards totalled $581 billion, while credit card transactions totalled $418 billion (news.com.au, 2024).
In recent times only fourteen percent of credit card users carry forward a credit balance each month (news.com.au, 2024), however there are other benefits such as flexibility on when payments are made, points schemes and fraud protection. However this fraud protection can cost merchants through chargeback fees. Also, businesses may provide employees with cards for business expenses.
For businesses it’s easy to offer this payment method as most payment gateways offer this by default. Businesses need to ensure their payment gateway is PCI DSS compliant.
One downside to accepting card purchases is the higher costs. These are typically in the range of 0.5% to 1% for Visa and Mastercard debit cards and 1.0% to 1.5% for Visa, Mastercard and American Express credit cards. These may not bother customers making small purchases, but if you’re selling products with a high transaction value e.g. overseas travel, your customers may prefer alternative payment methods. The ACC has regulations on how businesses can pass these surcharges onto customers.
International customers can also face difficulties with card payments. Credit and debit card charges are typically higher for international transactions. Their card may not be compatible with your online payment gateway. E.g. in China, the majority of debit cards are from the Union Pay scheme, while most Australian payment gateways are set up to accept Visa, Mastercard and American Express cards.
Key Takeaways
Advantages: Familiar for customers, easy to implement for businesses.
Disadvantages: Chargeback fees for businesses, may result in less transactions from international customers.
Verdict: While card payments may decline in popularity in the future, they’re still a necessary payment method that many of your customers will demand today. Businesses should accept payments not just from the traditional Visa and Mastercard, but also from American Express and China UnionPay.
Digital wallets – grow your business with this growing payment method
Digital wallets store the details of your customers credit/debit cards on their phones. Instead of typing in their card details they can choose their wallet, enter their password or other verification method. These wallets are a safe place to store card details as they’re fully encrypted. This means that your card details are converted into complex code, only the digital wallet and the bank can unlock this.
Digital wallets have seen extraordinary growth in usage over the past 10 years, having passed the early adopter phase into a commonly used and expected payment method. 46% of digital wallet users are likely to abandon a purchase if they cannot use a digital wallet on a merchant’s website (Paypal, 2022). Digital wallets also make payments easier by additional information used in payments such as shipping details and contact information.
Below are three popular categories of digital wallets:
Apple Pay and Google Pay Mobile Wallets
Apple Pay and Google Pay are mobile wallet services that allow users to make online payments from their smartphones, tablets or computers. These wallets are commonly used for smartphone purchases, with Apple Pay integrating seamlessly into the iOS ecosystem and Google integrating into Android. These wallets offer advanced security measures such as face and fingerprint recognition.
Chinese Wallets
Chinese wallets Alipay and WeChat Pay are the preferred payment method for Chinese nationals while in China, as well as those in Australia who wish to access Chinese funds. These are similar to other digital wallets in how they store and encrypt card details and offer advanced security measures. However AliPay and WeChat Pay enable Chinese customers to overcome significant hurdles in sending their money outside of mainland China.
- Chinese banks don’t have a BSB or account number like Australian bank accounts.
- There are restrictions on sending more than $50,000 USD annually outside of mainland China (using a Chinese wallet can bypass this legally).
- Not all Australian businesses accept online payments from Chinese debit cards, which mostly use the UnionPay card scheme.
Chinese wallets are also preferred by Chinese consumers as they offer familiarity and are in Mandarin. WeChat Pay is also part of the WeChat social media and messaging ecosystem which is used daily by 54% of all Chinese-Australians aged 18 to 44 (Lowy Institute, 2023).
Paypal
PayPal is one of the oldest and most trusted digital wallets. Launching in 2002, PayPal played a key role in providing trust and reassurance as eBay and other ecommerce websites gained popularity. It’s still a key player, used by 9.8 million Australians in the year to September 2022 (Roy Morgan, 2022). Their buyer protection policies enable a claim to be made if an item is not received or differs significantly from what was described.
Key Takeaways
Advantages: Reduce cart abandonment, accurate customer shipping details, depending on the wallet they can also be attractive to Asian customers.
Disadvantages: Most payment gateways don’t offer digital wallets by default, therefore an additional investment in technology is required.
Verdict: A payment method of growing importance. Preferred by customers for convenience and security. If you have Chinese customers, Alipay and/or WeChat Pay offer huge opportunities.
BPay – your customer’s preferred way of paying bills
BPay is an electronic payment system for paying bills to Australian businesses. It has become a widely used and trusted method for paying a range of bills across utilities, telecommunications, professional services, council rates, student accommodation and school/higher education fees. It was used by over 9.3 million Australians in the year to September 2022 (Roy Morgan, 2022).
Payers are provided with a biller code and reference number which is usually paid from their online banking. The payer can choose to take the payment from their card or digital wallet.
Payers also appreciate BPay as the charges are lower, typically a flat cost of around $1-$2 per transaction. As bills can often cost several hundred or thousands of dollars, this flat cost is cheaper than credit/debit cards that typically charge between 1-3% of the transaction value.
BPay is also fast, with payments made during business hours typically sent to the biller’s bank on the same day. Automatic payments can also be made using BPay and are a great tool that businesses can promote to avoid chasing late payments.
While BPay is typically conducted within Australia, Novatti offers a unique bill pay service for Chinese customers. This enables businesses to offer BPay as a payment method to customers in China or using Chinese funds in Australia. This is of particular benefit for higher transaction value such as education tuition fees, council rates etc where BPay’s lower costs become more noticeable. This can be provided to businesses as a white label platform to reflect the branding and trustworthiness of your brand.
Key Takeaways
Advantages: For customers it’s convenient, fast, often costs less than credit/debit card payments and trustworthy. For businesses they can receive payments faster and deal with less payment issues with customers.
Disadvantages: As it’s focused on bill payments, it’s not available for all business types e.g. ecommerce products.
Verdict: BPay will help you get paid faster by removing payment hurdles for your customers.
Direct debit – get paid on time, every time (almost!)
Direct debit involves obtaining the necessary authorisations from customers to automatically withdraw funds from their bank accounts on specified dates. A business can offer direct debit as an online payment method by setting up a direct debit agreement with a bank or a third-party payment processor.
This is a popular option for businesses that require recurring payments of the same amount, e.g. a gym membership, health insurance or streaming services.
For businesses it reduces the chance of late payments, provided the payer has sufficient funds in their account. Being an automated process it reduces time for both the merchant and the customer.
Key Takeaways
Advantages: Reduce late payments and make cash flow more predictable.
Disadvantages: Lengthier application and compliance process to set this up. Some customers may not feel comfortable with direct debit as it’s a pull payment rather than a push payment.
Verdict: Works well for recurring payments and is so frequently used your customers will expect it.
PayID – accept payments in real-time
In the vast world of payments, PayID is the newcomer, and an exciting one at that. Launched in Australia in 2018 as part of the New Payments Platform, PayID offers real-time, convenient and secure payments.
PayID is simple for your customers to use, they simply enter the PayID and the payment is processed in seconds, even if the payment occurs outside of business hours. Your customers are also able to view who the PayID is registered to so they can hit the pay button with confidence.
Account reconciliation is made easier with the ability to send payment descriptions of up to 280 characters.
Key Takeaways
Advantages: 24/7 real-time payments helps you get paid faster, longer payment descriptions helps account reconciliation.
Disadvantages: Can only be used for payments made in Australia. Only available for one-time payments, not recurring payments.
Verdict: A faster and easier alternative to traditional credit/debit card transactions.
Buy Now Pay Later – increase your ecommerce conversion rates
Buy Now Pay Later (BNPL) schemes such as Klarna, Afterpay, and ZipPay have become a key online payment method over the past 10 years. These schemes enable customers to buy and pay back the cost over a few weeks.
Approval is normally fast and there is no interest charged provided the repayments are made on time. These schemes can be great to add to your payment methods to increase conversion rate for gifts, clothing and electrical items, helping to prevent cost from being a roadblock.
There are some financial implications to consider. Firstly, settlement times can be longer, typically taking between 1-5 business days. Secondly, merchant fees are higher than most other online payment options, e.g. Afterpay merchant fees are 30 cents plus 4-6% of transaction value.
There are regulation changes being discussed for BNPL in Australia which could result in more stringent approval processes (Clayton Utz, 2024).
Key Takeaways
Advantages: Increase purchases of non-essential items by making price less of an issue.
Disadvantages: Longer settlement period and higher merchant fees. If stricter approval processes are introduced, this may make BNPL less popular with customers.
Verdict: A worthwhile online payment method to consider for clothing, electrical appliances and luxury items who are looking to increase conversion rate.
Gift cards – gift your customers with a seamless online shopping experience
If your business offers gift cards, customers will expect that they can redeem these online. Adding gift cards to your payment gateway will not just provide a seamless experience for customers, it’ll reduce time and complications for your customer service team if they’re expected to process payments and deduct gift card credit over phone or email conversations.
Key Takeaways
Advantages: Reduce complexities and customer service time spent processing gift card purchases online.
Disadvantages: The investment required to implement this may discourage small business owners.
Verdict: Suitable for medium to larger businesses looking to provide a seamless omnichannel shopping experience.
Cryptocurrency – stand out to tech-savvy buyers
Cryptocurrency is still low in adoption as an online payment method, but one worth mentioning for businesses considering unique alternative payment methods. If you’re looking to stand out as a tech innovator or keen to attract tech innovator customers, accepting cryptocurrency payments can help you stand out from the crowd.
Blockchain provides a transparent ledger of transaction information. Additionally, there are no chargebacks and less risks of fraud.
Payers from overseas who are familiar with cryptocurrencies may prefer this online payment method as it’s more familiar than Australian payment methods. Those from countries with volatile currencies may find cryptocurrency to be more stable.
For businesses there are some risks involved with accepting cryptocurrency that may need to be weighed against the advantages. If a business is paid in cryptocurrency, holds the funds and sells them, they need to pay capital gains tax. There are also anti-money laundering and counter terrorism financing regulations. We recommend discussing these tax and regulatory implications with a taxation or finance professional.
There are also costs associated in setting up your website payment gateway to accept cryptocurrencies.
Key Takeaways
Advantages: Stand out to tech-savvy buyers. No chargebacks. Familiar and fast for overseas cryptocurrency users who wish to purchase from your website.
Disadvantages: Steep learning curve for businesses.
Verdict: While offering cryptocurrency is a sure fire way to stand out from the crowd, you may find that it’s not worth investing time and money into offering this payment method until it becomes more mainstream.
Summary
After reading this article you may feel spoilt for choices in what online payment methods you can offer your customers. While you’ve now got more payment options available than in the past, customer preferences are now more fragmented.
Customers expect choices beyond credit/debit cards and wish to select payment methods based upon their needs and motivations. Businesses are expected to offer options to meet those motivated by familiarity, convenience, low cost, speed and short term lending.
By treating online payment methods as a key part of your customer service approach, your accommodating selection of payment options can work in your favour by reducing payment abandonment, generating loyalty and increased revenue, and reducing time spent by customer service employees in assisting customers with payment difficulties.
Offering many of these payment options will require a payments provider who can offer a diverse range of payment methods and integrate them seamlessly into your website.
How can my business implement these online payment methods?
Novatti works with businesses in Australia and New Zealand to offer payment methods that best suit their business needs. We don’t take a one-size-fits-all approach to payment methods and take the time to understand your business needs and offer you a solution that is right for your customers and your business requirements.
We can help you increase revenue and loyalty from customers by integrating online payment methods seamlessly into your website, including:
- Credit/debit cards
- Chinese wallets - AliPay and WeChat Pay
- BPay - we are the only provider of BPay from Chinese wallets
- Direct debit
- PayID
- Gift cards
If you would like to ask a question or arrange a friendly chat, please complete the form below.
Sources
PayPal. (2022). True Cost of eCommerce Fraud Report 2022. Retrieved from here. Accessed on 24 July 2024.
news.com.au. (2024) ‘Use it or lose it’: Aussies spending more than ever on debit and credit cards as cash use tanks. Retrieved from here. Accessed on 27 August 2024.
PayPal. (2022). Accelerate Growth: Insights from Business Leaders. Retrieved from https://www.paypalobjects.com/marketing/brc/us/seize-opportunities-for-growth-with-paypal/accelerate-growth-business-leader.pdf. Accessed on 24 July 2024.
Lowy Institute. (2023). Being Chinese in Australia Poll 2023. Retrieved from here. Accessed on 30 June 2024.
Statista. (n.d.). Most Common Online Payments by Type in Australia. Retrieved from https://www.statista.com/forecasts/1004164/most-common-online-payments-by-type-in-australia. Accessed on 23 July 2024.
Australian Competition & Consumer Commission (ACCC). (n.d.). Card Surcharges. Retrieved from https://www.accc.gov.au/business/pricing/card-surcharges. Accessed on 24 July 2024.
Roy Morgan. (n.d.). PayPal and BPAY Are Australia’s Most Frequently Used Digital Payment Services, Although Afterpay Is More Well-Known. Retrieved from https://www.roymorgan.com/findings/paypal-and-bpay-are-australias-most-frequently-used-digital-payment-services-although-afterpay-is-more-well-known. Accessed on 24 July 2024.
Clayton Utz. (2024, June). Buy Now, Pay Later Bill Confirms Key Tasks for the Sector to Work On Before It Becomes Law. Retrieved from https://www.claytonutz.com/insights/2024/june/buy-now-pay-later-bill-confirms-key-tasks-for-the-sector-to-work-on-before-it-becomes-law. Accessed on 24 July 2024.
