In 2020, digital wallet usage in e-commerce increased by 23.7% from the previous year, making up 29.8% of all digital payments in the eCommerce business for the United States.
While many people would agree that the increased usage of digital payments networks is due to the Coronavirus – it was, and still is, an emerging technology taking on many different forms.
The number of digital payment methods, from credit and debit cards to a contactless digital wallet, and cryptocurrency is forcing businesses to focus more on how to accept payments from these various networks.
So, how can your business benefit from these digital payment networks? Read on to find out.
- 1 How Do Digital Payments Systems Work?
- 2 Types of Digital Payments for Business
- 3 Benefits of Digital Payments for Business
- 4 Risks of Digital Payments for Business
- 5 Is Your Business Ready to Accept Digital Payments?
How Do Digital Payments Systems Work?
The process behind how digital payment methods work depends on the platform you use to process the payments. So, for example, if you are processing payments with PayPal right now, that will differ significantly from another payment processing merchant.
Let’s take a closer look at the four main stages of the digital payments process.
1. Digital Payment Authorization
Here at the initial phase of a digital payment transaction, the cardholder starts a sale by requesting the merchant to authorize payment from the customer’s bank.
The bank then grants the payment authorization if there are sufficient funds to cover the transaction and the payment is not identified as fraudulent.
The merchant then moves forward with the sale and receives authorization from various relay points within seconds. However, the sale is not final until the next steps in the process are completed.
2. Digital Payment Batching
Simply put, merchants don’t find it efficient to process transactions one payment at a time. It is much more efficient to batch payment data instead.
The batching process also allows merchants to review each transaction and check that the order is correct and no signs of fraud exist. A merchant can cancel a transaction if fraud is expected.
The importance of fraud prevention can not be overstated. Not only will a company face loss of reputation and potential fines, but it could also face several ongoing chargeback fees.
3. Digital Payment Clearing
During the clearing step of the payment processing cycle, batched transactions are accepted by the merchant. Once received, they are processed forward to the card networks. The card networks will then access the payment and forward it to the merchant.
The merchant debits that cost to the customer’s card account then routes the funds back through the customer’s card network.
4. Digital Payment Funding
The last step in the process is funding. At this point, the money is deposited as a transaction from the initiated account into the merchant’s account. In most cases, there are fees associated with the final transaction from both the depositor and receiver.
Your final total as a merchant will be the total of the transaction minus the associated fees. The most common fees are:
- Interchange fees paid to the issuer
- Assessment fees charged by card networks
- Processing fees charged by the digital payments processor
Most merchants can expect this process to be completed between 24-48 hours from initiation.
Let’s move on and take a closer look at the types of digital payments methods and both their benefits and risks.
Types of Digital Payments for Business
While PayPal, Stripe, and Amazon Pay lead the market in popular digital payment gateways, it’s still important to know what the main types that make up this landscape are landscape. These digital payment methods are:
- Mobile wallets, which include smartphones and smartwatches
- Money transfers made through payment service applications and QR codes through PayPal, Stripe, Venmo, Zelle, and so on
- Online-based purchases made through internet browsers and apps using credit cards, debit cards, or digital checks and bank transfers
- Crypto payments
If your business is willing to or already accepting these forms of digital payments, then you have nothing to worry about. All that is required on your part is to make them available on your website or mobile app for customers to use.
Companies like https://www.farmersbankidaho.com/personal/zelle-faq can help you facilitate the digital bank transfers you need to accept payments online.
Benefits of Digital Payments for Business
Digital payments processing allows you to provide as many different payment options to customers as you are willing to accept. However, this doesn’t mean choosing ten various payment providers and thirty other cryptocurrency payment processors.
Your primary focus should be on the most popular payment methods used by customers today. As time moves forward and trends change, you can adapt to the type of payments you are willing to accept.
In most cases, customers will be looking to use their debit card, credit card, direct deposit, PayPal account, or a similar payment gateway like PayPal.
If your business is willing to accept those payment gateways, you will benefit from 99% of all transactions on the internet. Not only does this allow you to digitize payments completely, but it will help you retain more repeat customers.
Simply put, customers enjoy using payment methods that they already know are secure and trustworthy. So, as a business, all you have to do is accommodate those payment methods.
Risks of Digital Payments for Business
While risks involved with digital payments processing are minimal compared to the benefits – they are still important to keep in mind. The main risk involved with utilizing a third-party digital payment processing company is the potential for data loss and theft. The main reason consumers do not want to use digital payment systems are:
- Data Hacking
- Identity Fraud
- Transaction fees
- Monetary Theft
No matter where you place your information on the web, there is usually someone trying to access it. By choosing a reputable and trustworthy payments processer, you avoid the risk of being fined for losing customer data and avoid undermining your business’s reputation.
You will also want a digital payments processor that has the computing capacity to handle multiple transactions at one time. If your payments processor cannot manage the checkout process for customers, they will leave your store.
Is Your Business Ready to Accept Digital Payments?
Businesses have had to adapt to changing technology throughout much of history. As the landscape of money continues to transform into digital form, so will the process by which a business accepts this new form of money.
We hope you found this guide accessible in learning more about digital payments and how they can help your business accept a broader range of payment types.
If you are interested in learning more about the changing digital landscape of business, then head over to the business part of our blog. See you there.