Maximizing Sales Through Payment Flexibility: Modern Payment Infrastructure for Your Online Store

Key Takeaways for Ecommerce Brands:

1. With 77% of customers willing to abandon their carts if their preferred payment method isn't available, offering diverse payment options is no longer optional for ecommerce businesses.

2. While credit cards remain the most used payment method, digital wallets and other APMs are gaining significant traction. This shift is particularly notable in markets like the US and UK, where digital wallet usage is approaching or exceeding 30%.

3. The decision between using a payment service provider (PSP) or separate payment gateways and processors has significant implications. While PSPs offer simplicity and faster access to funds, working directly with payment gateways and processors can provide better approval rates and lower fees.

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“I'm sick and tired of the fact that I can't get ergo split keyboards anywhere. I'm from the Netherlands, and credit cards may as well not exist here. The problem is that almost all prebuilt ergo splits with decent quality are made in the US, and all sellers have one thing in common, and that's credit card payment only. I have the funds but am just denied as a customer because I don't have a credit card.”

This rant was posted on Reddit three years ago, but according to a recent report by global payments platform Airwallex, it couldn't be more relevant. Drawing on the insights of over 3,000 consumers across the US, the UK, China, Hong Kong, Singapore, and Australia, the report uncovers consumer sentiment toward ecommerce payments, as well as broader market dynamics. Key findings include:

• 77% of customers would abandon their carts if their preferred payment methods are unavailable at checkout, signaling a very low tolerance for payment-related setbacks.

• Credit cards (39%) were ranked as the most frequently used payment method among consumers, followed by digital wallets (26%).

• 33% of consumers in the UK and 27% in the US now prefer to pay via digital wallets such as PayPal, Apple Pay, and Google Pay.

Beyond Credit Cards: Why Alternative Payment Methods Matter

Digital wallets are part of a wave of alternative payment methods (APMs) growing in popularity among consumers globally, especially in ecommerce transactions. A new study by market intelligence firm Juniper Research predicts that global ecommerce payments will skyrocket to $11.4 trillion by 2029 – a 63% increase from an estimated $7 trillion in 2024. 

A key driver of this growth will be APMs such as digital wallets, account-to-account payments, and buy now, pay later (BNPL). By 2029, forecasts the study, 69% of global ecommerce transactions will be made using APMs, and offering various payment options to end users at checkout will be crucial in optimizing customer conversion rates.

“Folks like paying in different ways,” explained Eric Shoykhet, CEO of Link Money, a financial technology company in San Francisco. “There’s a lot of folks who, for various reasons, may not want to utilize a credit card or a debit card in certain scenarios. So alternative payment methods can be extremely important to get an actual transaction completed.”

The message seems to be getting through. “The continued evolution of APMs will likely shape the ecommerce landscape,” said Michael Chien, CEO and co-founder of 101 Pickleball, a pickleball equipment seller. “For merchants like me, this trend means we must adapt by integrating APMs into our payment systems to stay competitive and meet diverse customer needs.” 

Payment Processing Explained: Key Players in Your Store's Transaction Flow

Unfortunately, despite the importance of payment methods in ecommerce, many online sellers don’t know the difference between a payment gateway, payment processor, and payment service provider (PSP). Let’s take a minute to understand these players' roles:

• Payment card networks (like American Express, Visa, and Mastercard) provide the electronic infrastructure that enables seamless communication between consumers, banks, merchants, and payment processors during transactions.

• Payment gateways – popular examples include Authorize.net and PayPal's Payflow – serve as secure intermediaries between your online storefront and the payment processor, capturing transaction data from your website and transmitting it safely for processing. 

• Payment processors such as TSYS, Fiserv, FIS, and Elavon manage the information flow between the gateway, card network, and issuing bank. They request transaction approval from the issuing bank and facilitate the transfer of funds between banking institutions. 

• Payment service providers (PSPs) combine the functionality of both payment gateways and processors into a unified solution. This consolidated approach has gained popularity by offering merchants an alternative to working with multiple providers. Leading PSPs include Stripe, Square, and PayPal..

Opting for a PSP over separate payment processing components could be your best path if simplicity is your priority. Managing merchant fees and ecommerce bookkeeping becomes more streamlined when you're working with a single provider – a significant advantage for many businesses.   

‍PSPs often offer another compelling benefit: fast access to your funds. Many can transfer money to your account the day after a transaction occurs, even though the actual settlement from the acquiring bank typically takes longer. 

‍However, working with distinct payment gateways and processors comes with its own set of advantages. High-risk merchants, such as those selling CBD products or adult items, often achieve better transaction approval rates through this approach. Additionally, high-volume merchants can benefit from reduced fees, leading to meaningful cost savings.

Choosing Your Payment Stack: Balancing Simplicity and Business Needs

For online merchants, the choice between using a PSP or working directly with payment gateways and processors ultimately depends on their specific business needs and circumstances. However, understanding how sales proceeds flow from customer to merchant bank account is a precondition for making informed decisions about payment infrastructure.

While both approaches have their merits and drawbacks, one common trepidation about the payment gateway and processor route is that it adds complexity to ecommerce accounting. While that may create additional accounting challenges, these can be addressed by using ecommerce bookkeeping solutions like Finaloop. The key is to choose the payment infrastructure that best serves your business model and customer base, then build the operational support system needed to manage it efficiently.