A merchant can offer or accept countless payment methods to collect payments from customers, such as credit cards, e-wallets, manual payments (bank transfer, check, cash, etc.).
In a physical store, you may use cash, checks, credit cards, or contactless mobile payments like Google Pay.
Online, you can pay with credit cards, SEPA direct debit (IBAN), bank transfer, or use PayPal or an e-wallet linked to your credit card.
And for each method (let’s say credit cards), you have a multitude of options (Visa, Mastercard, American Express, to name a few). In fact, there are over 200 alternative payment methods worldwide. So, how many payment methods should you offer to your customers when they reach your payment or subscription page?
Factors to consider when preselecting payment methods
In general, offering multiple payment methods is obviously beneficial for your customers. For example, a study conducted in 2014 by the PPRO Group revealed that 68% of UK consumers abandoned an online shopping site due to the payment process. 57% of them left because the process was too complicated, while 46% did not complete the transaction because their preferred payment method was not offered.
Therefore, fewer payment methods lead to higher bounce rates. But giving buyers a ton of options will still result in abandonment. As always, there is a User Experience (UX) cost associated with too many choices.
Thus, you need to find a middle ground that depends on factors such as:
- Geographic region – Determine the methods suitable for both your company’s country of domicile and your customer base. You may need to adapt and offer the preferred payment methods country by country. For example, in Germany, SEPA direct debit (SCT) and Giropay are more popular than credit card payments, a residual effect from World War II when financial systems were faulty.
- Purchasing mode – Do customers use your services online or offline? Choosing the most commonly used omnichannel payment option for the customer can be the best option if they engage in both. If they primarily make online purchases, you can safely omit offline options like cash on delivery and focus on selecting online payment methods for your target audience.
- Business model – Do you have a recurring billing model, or do you primarily process one-time payments? Consider an additional layer of complexity if you have subscription-based customers.
To summarize, the first step is to preselect payment methods that meet these basic parameters. The next step is to study the costs and evaluate the risks associated with these options.
For example, PayPal is incredibly easy to set up and facilitates international transactions. But soon, you realize that a customer is primarily theirs before being yours, and you will also encounter their aggressive risk prevention processes that can result in payment holds with little explanation. Essentially, you don’t have control over communication with your customer, and acquired payments can be refunded without your consent.
If you are preparing for internationalization, it is also important to note that not all payment methods support all currencies. And it is always advisable to keep an eye on outlier options, i.e., those that are not very popular but are highly used by your customer base, in order to minimize the abandonment rate during payment.
Payment methods in recurring billing
Recurring billing uses the same payment methods as one-time transactions, such as credit cards, direct debits processed with ACH (US), Bacs (UK), or SEPA (Eurozone), PayPal, Amazon Payments, etc. The difference is that when using a billing system for recurring billing, you can configure two types of payments: automatic and manual.
In automatic billing, your customers can choose a payment method that will be automatically debited during subscription renewals. With manual payments, you collect and record the payments yourself.
In the case of automatic billing, some billing solutions go further by allowing your customers to change/update the payment method at any time and completely autonomously. This avoids payment failures and ensures that you receive your revenue.
Pro tip: You have set up automatic payment collection for your subscription customers. But what happens if it fails?
Setting up recurring billing is not enough. You need to implement processes that analyze payment failures and automatically take action to recover the amounts owed to you. ProAbono takes care of this by:
- sending email notifications to your customers for minor or major payment failures,
- attempting multiple retries to collect the failed invoice,
- providing options to settle invoices with total payment failures,
- sending email reminders to customers whose credit cards are expiring soon,
- offering a customer portal where clients can view their subscriptions, invoices, and payment information.