The Most Popular Payment Methods

PayPal, bank transfer, direct debit, credit card – how do people prefer to transfer money online? We present you the results of a recent study.

41% of all online purchases worldwide prefer Paypal or similar payment methods. The second place goes to credit card purchases with 34% followed by direct debit / bank transfer with 18%. The last positions are occupied by cash on delivery (4%) and prepaid payment (2%). These results published on show especially one thing: Customers seek for a usable and secure online payment. Sounds logical. However, for dealers, this often implies a higher risk and additional fees. We have summarized the most important facts concerning the most popular online payment methods:

Originally founded by Ebay, the company is one of the most important payment providers worldwide – deservedly so, because it offers a win-win solution for customers and dealers: The buyer feels safe and the seller gets his money immediately. Plus, the usability is super easy. The only drawback for dealers: For each payment, PayPal retains a handling fee and a commission.

Credit Card

What is widely spread in real life also works pretty well online. Credit card payments are quite easy and safe for customers and generally also well suited for dealers – with just two restrictions. The customer is able to return the payment and fraudsters can pay with stolen credit cards. Both can mean that the online seller is left with the damage. In order to solve those two problems, the so-called 3D Secure protocol has been introduced by many credit card providers such as for example by Visa Card (Verified by Visa) and MasterCard (MasterCard SecureCode). This authentication process requires an additional code from the customer in order to complicate both the fraud and the return of the payment. How safe the new procedure actually is, remains controversial. For online sellers, it offers at least an additional security to avoid payment default.

Debit Card/Bank Transfer
There are basically two possibilities to conducts a bank transfer – either the customers pays in advance, which implies insecurity for the customer and security for the seller, or the customer buys on account. Then, the relationship is vice versa.

Especially in Germany, the purchase on account is very popular. The advantages for the customer are obvious. However, this payment method has also benefits for sellers because it increases the buying intention of the customer and is a good tool for customer acquisition. Disadvantages are high return rates and a relatively high risk. Meanwhile, payment providers have developed business out of this drawback by handling the whole purchase including credit assessment, dunning process and the risk for the payment default. The seller receives the money directly from the service provider, independently from the payment of the customer and bears no risk anymore. The downside is a sometimes very high fee.

The payment via direct debit is quite comfortable for customers and dealers. The customer transfers his account number and the dealer debits the money. The disadvantage for the seller is that depending on the country the customer can return the payment up to many weeks or even months after the purchase. Within the SEPA area, the return is possible up to eight weeks after the transaction. In addition, also fraudsters can use stolen account information to purchase goods. In case of doubt, the seller looses his goods to the fraudster.

Furthermore, there are many online providers that offer a direct debit service, with which the client can transfer the money directly via his bank account. Even though this is a quite comfortable method, its security is controversial because the account information is submitted via a third party provider. It is recommended to read the general terms carefully and to find out about fees and security regulations first.