Online payment services allow business and consumers to exchange money electronically over the Internet. With an online payment service, your business can receive payment from virtually any customer with an email account. Online payment services have recently become very popular with businesses and consumers.
Advantages of Online Payment Services
Online payment services can either replace or supplement your decision to accept credit and debit cards. Opening an online payment account is often faster and easier than setting up a Merchant Account (which is required to accept credit and debit card payments). Online payment accounts typically incur smaller fees than a traditional Merchant Account, which can have a big impact on businesses with many small transactions. From a customer-service perspective, it's beneficial to have multiple payment options available. Online payment services are also user-friendly and can simplify the payment process by storing customer card information or billing customers at a later date.
Disadvantages of Online Payment Services
As with all payment methods, online payment services have their drawbacks. Most of these services redirect customers to a payment service website to complete a transaction. Being forced to leave your business's website can be confusing for customers - especially those new to online shopping - and could make them abandon a purchase they may have otherwise made.
Your business may not get enough value out of offering both an online payment service and accepting card payments. On the other hand, limited payment options may turn some customers away. Finding the right balance of payment options is something that is unique for every business.
Security Concerns
Major providers of online payment services (for example, PayPal or Bill Me Later) have developed features like two-factor authentication to help businesses enhance e-commerce security. Two-factor authentication requires businesses to enter a six-digit code in addition to their password, making third-party scams rare. As e-commerce becomes more popular, security features will continue to evolve. Be sure to research service provider plans for the most current security technology.
Shopping Cart Services
Online payment services require a virtual shopping cart. Virtual shopping carts allow businesses to accept orders on multiple products from their website. A shopping cart can calculate the total, tax, and shipping costs of an order, in addition to collecting customer account and shipping information.
Some online payment service providers offer free shopping cart services to businesses. If your online payment service does not provide a free, secure shopping cart option, third-party shopping cart services can be used.
PayPal
PayPal is an online service that enables businesses to accept payments from any customer with an email address and credit card or checking account. PayPal is a popular option for businesses with many small transactions and businesses that do not directly process card payments.
When a customer decides to make a purchase on your business's website via PayPal, they simply click the button that will redirect them to the PayPal website. New PayPal customers will complete a one-time, free registration to receive an account number. This account number will allow them to securely make online payments to registered merchants such as your business. After registration, the customer will complete their purchase using their account number. The payment is then processed and sent directly to your PayPal account. The customer is then returned to your business's website.
Bill Me Later
Bill Me Later is an online payment service that allows consumers to "buy now, pay later." Customers are billed for the purchase after several weeks and can then choose to pay either online or through the mail.
When a customer decides to make a purchase using a "Bill Me Later" option, they are prompted for their birth date and the last four digits of their Social Security number. With this information, the customer is quickly approved or denied through a credit check. If approved, the transaction is completed through a process similar to a credit card transaction. Customers typically receive their bill within 14 days, at which point they can choose to pay through the mail or online at the Bill Me Later website. Businesses that use Bill Me Later are charged a small fee, generally smaller than that of a Merchant Account, for each transaction made through Bill Me Later.