Types of Electronic Payment Systems Explained

Ecommerce has given shoppers a new way to find and buy products from the convenience of their homes using their mobile devices. Online shopping has grown so fast that it is expected to reach 300 million in 2023. Retail mobile commerce sales hit $359.32 billion in 2021. By 2025, it is expected that sales would more than double and reach $728.28 billion. To date, 69% of Americans have shopped online and 25% shop online at least once a month.

One of the most convenient features of ecommerce is that it gives customers the ability to pay according to their preferred mode of payment. It used to be that credit cards or cash were the preferred payment modes by ecommerce companies. But some online shoppers are not comfortable paying with a credit card and revealing confidential information to the merchant. This paved the way for the rise in different payment methods. In this article, we look at the different payment methods. 

Available Payment Methods for ECommerce Stores 

  1. Credit/Debit Cards
  2. Bank Transfers
  3. E-Wallets
  4. Remittance
  5. Cryptocurrency 
  6. Mobile Payments
  7. Prepaid Cards
  8. E-Checks 

Tips For Making Online Payments Secure

  1. Use Two-Factor Authentication
  2. Encrypt Data 
  3. Stay PCI Compliant 
  4. Get An SSL Certificate For Your Store 
  5. Use Payment Tokens 
  6. Enable An Address Verification System 
  7. Implement 3D Secure 

Payment Methods For ECommerce Stores 

Aside from being able to shop at their convenience, ecommerce has also allowed customers to pay using their preferred modes of payment. Gone are the days when online merchants preferred cash as their mode of payment. Over the years, different payment methods have evolved allowing merchants to give customers different options for paying for their purchases. Let us take a look at these payment methods: 

1. Credit/Debit Cards 

Credit cards are still, without a doubt, the most popular way to pay online. We all know that Visa, MasterCard, American Express are the major credit card networks but there are local credit cards used around the world. According to a study by JP Morgan Chase, credit cards are the dominant online payment method in the US, used for 47 percent of all ecommerce transactions, translating to $348.74 billion in annual online sales.   

Credit cards are simple to use and secure. As the merchant, you need to choose which type of credit card type your customers can use. Keep in mind that credit card processing fees usually appear as a fixed percentage of a transaction. Credit cards use strict security measures such as using card verification numbers (CVN). With such a system, you can detect fraud by comparing CVN numbers with the cardholder’s information. 

Debit cards are ideal for customers who shop online within their financial limits. You can only pay money that is within the balance stated in your bank account. Debit cards ensure that you do not spend above what you can afford. Debit cards provide vendors with a certainty of payment and can save time and effort.

2. Bank Transfers

Bank transfer payment can be secured because each transaction undergoes authentication and verification by the bank itself. When customers choose bank transfers, they are redirected to the online banking portal. Once their transaction is confirmed, the customer gets notified on their smartphone. 

Just like debit cards, the customer uses money that is already in the bank. They first need to register with their bank to avail of the online banking facility. During the purchase, the customer will be asked to input their username and PIN to complete the order. It is usually the last option if other payment methods fail. Also, some online stores are keen on using bank transfer as a payment option. 

However, not all banks have ecommerce capabilities. Thus, this is important when selecting a bank to handle your ecommerce transactions. When looking for a bank with online shopping capability, look for one that can manage information security like data encryption and fraud prevention. In addition, they should also have transaction identification capabilities. 

3. Electronic Wallets

The onset of the COVID-19 pandemic has led to the growth in the use of digital wallets. In 2020, electronic wallets collared 21.5% of the transaction payment market share. Data from TradingPlatforms.com revealed that the rise in digital wallet use was attributed to the COVID-19 pandemic and consumer fear of paper banknotes related to possible virus transmission.  

E-wallets serve as a repository of a customer’s personal data and funds. The money can be used later for buying purchases from online stores and websites. With e-wallets, you can pay for online purchases without carrying cash. In order to use e-wallets, you need to create an account with the merchant. 

Digital wallets provide customer information and multiple credit/debit cards and bank accounts. You only need to register once, and you do not need to re-enter information every time while making payments. Upon creation and linking of your bank account, you can now withdraw or deposit funds to the account.

4. Remittance

If you have international customers and suppliers, remittance is a viable ecommerce payment method. Remittances may require two bank accounts, a third party, or a partner bank. In order to facilitate the transfer of funds, the partner bank may charge additional fees. Remittances usually come in the form of ACH payments and wire transfers. 

Back in the day, remittances could take several days to complete. Now with the dawn of electronic funds transfer, remittances can be sent instantly or within one business day. In the case of international remittances, however, it may take longer than advertised and can be costly, so do consider this when sending remittances for your online purchases. 

With remittances, watch out for providers who charge high fees on electronic fund transfers. In addition, some providers also disguise their own foreign exchange costs in their fees. Moreover, some providers allow you to send and receive one-day payments, making it easy for you to do so.   

5. Cryptocurrency

Although not as popular yet, cryptocurrencies are gaining popularity as a payment method. 39% of consumers believe cryptocurrencies can be used for payments, not just investments. Despite this, many customers are still cautious about cryptocurrency payments. 50% of customers think that all forms of cryptocurrencies are risky and 35% believe that this will prevent crypto from becoming a mainstream payment currency. 

Many payment providers have started recognizing the payment potential of cryptocurrencies. To date, Visa has over 30 crypto card programs and MasterCard has more than 20. But despite that, many providers are still holding back on its adoption for the following reasons; 

  • Regulation.  With clear regulations, customers will be more comfortable with using a wide array of crypto products. 
  • Image Problems. High-profile controversies and criticisms from prominent figures have left cryptocurrencies with a murky reputation that has kept ecommerce businesses from adopting it as a payment method.   
  • Price Volatility. The price of cryptocurrencies has been wildly fluctuating, which has kept consumers and merchants from using them as payment methods. 

By adopting cryptocurrency, it will be easier to attract customers before the industry becomes fully grown. It is expected that global crypto transaction volume will increase by 70% this year to $10.4 billion as more customers start to realize its potential. It will become easier for shoppers to buy and use cryptocurrencies at checkout as it becomes accepted as a mainstream payment method.

6. Mobile Payments

As smartphone usage continues to increase, people are finding a way to pay for their online purchases directly from their mobile phones. Data reveals that the global mobile payment technologies market is expected to grow from $68.85 billion in 2021 to $86.91 billion in 2022 at a CAGR of 26.2%. It is expected that the market is expected to breach $200 billion by 2026 at a CAGR of 25.1%. 

With mobile payments, all you have to do is send a payment request to the service provider via SMS. Your mobile account or credit card will be charged for the purchase. You just have to download software from your provider’s website and then link your credit card or mobile billing information to the software. 

Mobile payments add a layer of security to online purchases. Some systems like Apple Pay and Google Pay secure your bank details by replacing them with a token, a series of randomly generated numbers. Tokens are used to execute digital purchases keeping the real credit card information stored safely. Tokenization helps in lessening fraud when processing digital transactions.

7. Prepaid Cards

Prepaid cards come in various stored values, and the customer has to choose from them. Although their adoption rate is still very low, prepaid cards are starting to become popular in certain niche categories. It is popular among minors and customers with no bank accounts. Unlike a debit or credit card, prepaid cards don’t require a bank account. In addition, you do not need good credit history to make online transactions. 

With prepaid cards, you can make one-time purchases depending on the amount stored on the card. Your purchases will not exceed the planned expenses. Your charges will be limited to the amount of funds indicated on the card. With prepaid cards, there is less risk of overspending. You can reload the card as often as possible in various ways, either through bank transfer, direct deposit, or cash. 

Prepaid cards help you stay in control of all your expenses. Since it is already loaded with money, you can only spend money up to the limit amount loaded into the card. Prepaid cards can be open-loop or closed-loop. The former is issued by Visa, MasterCard, American Express, or Discover. The latter, on the other hand, are issued by a particular retailer and can only be used to purchase the issuing merchant. 

8. E-Checks

E-checks or electronic checks are electronic payments made from a checking account. It works like a regular check except that instead of tearing a check from your checkbook, you provide payment information such as bank account, routing number, and payment authorization through an e-check authorization form.  

E-checks use the Automated Clearing House (ACH) to debit the payment from a customer’s checking account directly. They are transmitted electronically, resulting in quicker, safer, and easier transactions. Compared to their paper counterpart, e-checks have less processing time. However, it works differently than credit cards. The former uses ACH while the latter goes through the card networks. 

As a payment method, e-checks are highly secured. It undergoes five security levels: 1) Authentication; 2) Digital signature; 3) Duplicate detection; 4) Encryption; 5) Certificate authorities. Unlike paper checks, which have a lengthy verification and authentication process, electronic checks streamline the payment process for all parties involved. 

Tips For Making Online Payments Secure  

Security breaches are quite prevalent nowadays. With hackers becoming more intelligent these days, keeping your online payments secure is now a must. During the 2nd quarter of 2022, there were approximately 52 million data breaches worldwide. The highest number of data breaches detected was in the fourth quarter of 2020, with nearly 125 million cases. 

Security breaches could cost you time and money and damage your reputation. To protect your business from security breaches, you need to implement strict online payment security protocols. Here are some ways you can protect your online store from hackers and fraudsters.

1. Use Two-Factor Authentication

Two-factor authentication or 2FA adds an additional layer of security to your online account. In this method, the first factor is a password and the second is a text with a code sent to your smartphone, or biometrics such as fingerprint, face, or retina. 2FA protects your account from being accessed by hackers. When your account is compromised, they will likewise be able to access your financial accounts. 

Although two-factor authentication can improve security, it is not foolproof. 2FA will protect your account from data leaks and hacking attempts. 2FA is a combination of the following: 

  • Something you know (password)
  • Something you have (text with a code sent to your phone or other device or smartphone authenticator app)
  • Something you are (biometrics using fingerprint, face, or retina)

Two-factor authentication can also be implemented on mobile devices. New models of smartphones come with fingerprint and facial recognition capabilities. In addition, they also use GPS to verify location as an additional factor. Now smartphone users can verify  at least one trusted phone number to enroll in mobile 2FA.

2. Data Encryption

Data encryption protects confidential data by converting it to encoded information, called ciphertext, that can only be decoded with a unique decryption key, which is generated at the time of encryption or beforehand. Data encryption can be combined with authentication services to ensure that keys are only provided to or used by authorized users. 

According to the 2021 Data Breach Report of the Identity Theft Resource Center, there were 1,862 data breaches in 2021, beating the 1,108 and 1,506 in 2020 and 2017, respectively. Data encryption is important nowadays because hackers can easily access data. With many businesses facing data protection regulation requirements, data encryption can help protect their data. 

Data encryption hides information from malicious individuals. Thanks to new technologies, it is now extremely difficult for hackers to steal confidential data. Data encryption uses a 12-bit key which is now the standard in today’s encryption practices.

3. Stay PCI Compliant 

If your store is engaged in processing payment for your store or accepts credit cards, you need to be PCI compliant. Non-compliance could significantly impact your business in the form of fines and penalties. Also, it could lead to a damaged reputation for your business. According to the latest Payment Security Report, only 27.9% of organizations fully comply with PCI DSS.

To become PCI compliant, you need to make sure that access to your systems has several layers of protection. Conduct regular testing of your firewall policy to protect any data you are holding. In addition, vendor-supplied passwords for any hardware or software should be changed immediately to unique and secure passwords. 

Never keep customer data such as PIN numbers or card validation codes to protect cardholder data. Use data encryption when transmitting data to ensure that hackers will not be able to read data. Finally, you should implement strong access control measures. You can provide your staff with unique IDs for computer access.

4. Get An SSL Certificate For Your Online Store

If you own an online store, an SSL certificate is a necessity. It will help secure your website by encrypting communication between your store and its customers. When an SSL certificate is installed, it will prevent hackers from intercepting personal information or stealing credit card details. An SSL certificate is required if you accept credit card payments on your website. 

Just how important is an SSL certificate in boosting customer loyalty? Well, according to 67% of customers, they would refuse to shop in an online store without an SSL certificate. In another study, 84% of customers say they would abandon a purchase if the connection was not secure. On the other hand, if you earn the trust of customers by showing them that you are protecting your customer data, you gain their loyalty.  

To gain the confidence of your customers, you need to install your SSL certificate on your website. It shows customers that there is a safe connection between your website and browser. Aside from that, your SSL certificate contributes to increasing your site speed. It will also help increase your Google rankings. 

5. Use Payment Tokens 

Another way of keeping your online payments secure is to use payment tokens. This technology protects vulnerable data with a temporary value generated as a series of numbers called tokens. Payment tokens replace sensitive data with non-sensitive ones. It is a way of protecting payment data from online crimes like payment fraud, cyber attacks, or data breaches. 

Payment tokens collect customer details either through checkout or a POS system. After collecting the data, tokens will replace the data with number combinations. For example, John Doe is replaced with a temporary value like 123456. Credit card companies like Visa and MasterCard own secure keys to decode the tokens and pass the actual card number to the payment processor. 

While tokens can still be stolen, they cannot be used to make a payment without cryptographic info. Using payment tokens can help reduce fraud by 26%. Merchants who handle more transactions daily need tokenization because they are most vulnerable to fraud. In addition, it eliminates the need to add more shipping information. 

Giving customers different payment options will help ensure that they will keep doing business with you. The more they can pay with their preferred method, the more they will shop at your online store.  

Get Help For Your ECommerce Store with airisX

airisX has a complete range of individual and complete solutions for ecommerce sellers – our bread and butter. Born out of necessity to help ecommerce sellers scale their businesses and lower their costs, we solve your pain points by bringing all your ecommerce staffing needs under one roof. Email us at contact@airisx.com and we will give you solutions tailored to your needs. 









airisX has solutions for all sizes and types of companies. Getting started is as easy as scheduling a consultation with us, so go ahead and