7. Taking payments
As a retailer, you already know how traditional sales transactions work. You ring up a sale, the total shows up on a screen, the customer swipes, hovers or inserts their preferred form of payment, and voila!, the machine does its magic and money is moved from your customer’s account to yours in the blink of an eye.
Online payments are a bit more complex, primarily because you and the purchaser are not in the same place. In lieu of you behind the counter, the customer interacts with an online payment system, and you don’t know they’ve made a purchase until you get an order on the other end, and funds end up in your bank account.
Let’s start with the workflow of payments.
There are four players in each transaction.
- Customer – the one who is making the purchase.
- Merchant – you, the one selling something.
- Acquirer – a bank that processes credit or debit card payments on behalf of the merchant and routes them through the card networks (Visa, Mastercard, Discover and American Express are examples) to your bank. Sometimes, the bank may partner with a third party to process payments.
- Issuing Bank – the bank that offers the customer credit on behalf of the card networks.
To offer online payments, you need to go through several steps. Some should seem very familiar to you, as they mirror your retail processes and may even be add-ons to your existing accounts and relationships.
Merchant Bank Account
An excellent example of an existing relationship is a business bank account. More than likely, you already have one. They may already accept online payments or use a third party to route payments from your website to the card networks noted above. You could end up with a single acquirer that serves both roles, or you may have separate ones, depending on your bank.
You will also need a gateway, which ensures that all the personal information sent from your website is secure. Gateways use “tokenization” to anonymize payment details and keep any sensitive data out of your systems. These use standardized encryption technologies to protect transaction information.
A single provider can provide you with a gateway, processing and acquiring services. This can significantly streamline and simplify the process of setting up payment processing on your website.
If this sounds a bit complex, it is. But you don’t need to know how it all works in the background. The process works like this:
- A customer makes a purchase on your website, enters the payment and shipping information and then presses the buy button.
- The gateway takes all the sensitive data and encrypts it before sending it to the card network.
- The card network then talks to the issuing bank, which confirms or denies the purchase request.
- The issuing bank will either confirm the purchase with the customer or deny it.
- If confirmed, the funds are deducted from the customer’s account and placed in yours.
This is how it works for U.S. payments. If you expand internationally, you may need to find a bank partner who can handle those types of relationships since they often involve currency calculations from the foreign currency to U.S. dollars in real-time.
Let’s stick with the U.S. market for now.
Just like anything in life, everyone wants a slice of the sales pie. As four parties are involved, several will want to charge fees to handle their share of the process. The card networks refer to these as “interchange and scheme fees.”
Interchange fees make up the bulk of the costs involved in a transaction. The amount is given to the issuing bank since it takes on the greatest amount of risk by extending credit and/or banking services to the cardholder.
Scheme fees are collected by the card networks themselves and cover costs associated with authorization and cross-border transaction fees.
Additional fees may be collected for refunds and other network services.
The actual fees depend on the card type, transaction location and channel (the same fees for an in-person transaction vs. an online one may differ). For example, a transaction made with a rewards credit card incurs a higher network fee than a non-rewards card transaction because the additional part of the fee subsidizes the cost of the rewards program.
Any financial institution should be willing to provide you with all these transaction fees and costs so you can compare providers. Your existing bank may not be the most competitive out there when it comes to processing online payments. Even if you use a provider you like now, you should shop around periodically to ensure you get the best deal available.
The Payment Funnel
Any transaction, whether it’s in your store or online, involves three steps. A sale is turned into a conversion when all three stages – checkout completion, fraud protection and network acceptance – are successfully completed.
At any stage, your pool of potential customers can shrink. They may have found your checkout process was too complicated, or it was so involved that it gave them time to think twice about making the purchase. Some transactions may have been unintentionally fraudulent; the customer simply didn’t have the correct credit card information entered, or the bank declined the transaction because there were insufficient funds in the account.
Understanding each stage will help you increase the pool of actual sales.
Let’s start with your checkout experience. Customers have gotten used to checkout processes that are no-brainers. Blame Amazon.com for their Buy Now button. All the payment and shipping information is already stored with the company, so all that’s left to do is click on an item and wait for it to show up in a day or two. The process is optimized to take advantage of people’s tendency to make impulse purchases, especially if it appears that it is on sale. People cannot resist a bargain and don’t want to miss out, so they make the purchase.
You want your store to have that same sense of immediacy. You want to focus on making the process simple for the user so they don’t abandon their cart once it has something in it.
As a customer starts the purchase process, you want to ask for just enough information to move the transaction to the next step without overwhelming them with fields to fill out. Breaking up the request for shipping address and payment information is a good start. It’s even better to have a checkbox that says “Address Same as Shipping? so the data will autofill.
87% will leave the checkout process if a cart is too complicated. As you think about your online store, approach the process as a customer would. Remove any roadblock you see that may cause a customer to leave their purchases in the cart.
As you build your online store, pay particular attention to how quickly pages load and how easy it is for you to enter transaction information. The best forms, of course, adapt to the customer’s needs. For example, they automatically scale to a tablet or a phone and, when possible, autofill information from the user’s computer, tablet or phone. They may even store the customer’s address, credit card information, and purchase history.
When thinking about payments, consider the other payment options out there. New generations of shoppers use other payment methods, such as Apple Pay, Google Pay, PayPal, etc. And that doesn’t even cover international forms of payment. For example, half of customers in the Netherlands prefer to pay with iDEAL, a payment method that directly transfers funds from a customer’s bank account to the business.
If you choose to export, your entire website should be set up with this in mind. This includes allowing the visitor to translate the site into their language using artificial intelligence. They will also want to see pricing and shipping costs expressed in their local currency. No one wants to toggle between their shopping cart and a currency translator to see what it will cost them in their own currency.
You also want to ensure that the card number field accepts international card information and customize your shipping information to have a Postal Code field rather than a Zip Code field. Nothing is more infuriating than a customer in the UK trying to enter a Postal Code in a field that will only accept five digit Zip Codes.