There are many different methods of payment available online, and in this report, I am going to focus on two. One is credit/debit cards, and I will be comparing that with PayPal. I will be explaining the positives and negatives of each, so you can make an informed and thought out the decision of which to support on your website.
Credit and Debit cards are issued by banks and building societies like Nat-West or Barclays as well as specialist credit card companies like Capital One and Aqua. The framework of these cards (the company that links up the bank account to the card, making the transaction possible) are companies like Visa, MasterCard and American Express (also known as AMEX). Although there are others, these three are the most popular and widely accepted types of credit/debit cards.
Advantages of using Credit/Debit card payment
Everyone has one
Nowadays, everyone has a debit card, because everyone has a bank account, it has recently overtaken cash as the most popular form of payment in the UK, and most banks give a standard issue debit card when a customer signs up to a bank account, so they can spend money on their card. This means that it can open your business to an almost universal customer range.
Unlike the early days of E-Commerce, customers had to send sellers their card details via email or on the telephone, but now they can just type their details into your website’s checkout and the money will be taken from the account almost instantly. This is convenient as the money will be transferred from their account to your account in a few seconds.
Credit card companies, like the Tesco Clubcard Credit card, give customers 1 Clubcard point for every pound they spend on their credit card (even if they are spent in competitor stores). The Clubcard points
that are then earned from this, the customers can spend on free shopping at Tesco or on days out at family attractions like Alton Towers or Thorpe Park. This will benefit you because customers will feel more inclined to buy something from your site, as what they are buying is more of an incentive because they are earning points for buying from you, so everyone’s a winner.
Customers can track their spending because they get a bank statement through the post at the end of every month (or three months depending on the bank). This means that they will be more confident about giving you their bank details because they can see where and when money has gone out of their account. The bank will provide information on if your company has taken out as much or as little as you should have, which can build customer trust. Using services like Starling Bank means tracking your money is easier than ever.
When buying on a Visa debit card, the payment site will have an embedded program, that is entitled ‘Verified by Visa’. It asks the customer for a password, that they will have set during their first online transaction. This system is in place to prevent unauthorised use of that person’s debit card online. The program asks for the customer to re-enter their Card Number, Expiry date and the name on the card, as well as the aforementioned password. This could benefit your E-Commerce business because a customer will feel safer using their card when this particular system is in place. MasterCard operates a similar system called ‘MasterCard Secure code’.
Disadvantages of using credit/debit card payment
Fear of theft of details
Even with all the security systems that are in places, such as SSL, HTTPS and firewalls, customers are still sceptical about giving away their bank details to a complete stranger such as yourself. This problem will be eternally persistent, and all customers will need to be constantly reassured. This could be a problem for you because customers may choose not to buy from your website, and find an equivalent product in a traditional shop.
Credit Card Debt
A common problem is that customers dig themselves into large amounts on their credit card, and most people cannot pay this debt back. This may not affect you in a direct way, but customers may purchase items on your website, and this could push them into negative equity, and this could prevent them from buying off you again.
As a seller, you have to pay 2.5% of the transaction value to the company that supplies the credit card to the customer, this does not apply to debit cards, however. This could affect you because it is an expense your business, and if a transaction is large, then you will be handing over a substantial amount of money to a credit card supplier.
A credit card has lots of details on it. An expiry date, a card number and cardholders name, can be quite time-consuming and tedious. Especially as the customer will need to enter personal details like their address and email address. This can become even more time consuming as the customer will need to enter these details for every single e-commerce site that they visit. This can cause negative effects because the customer may choose to go to Amazon, where their details will have been saved from a previous purchase, so it saves them from entering them again.
The system like MasterCard Secure Code and Verified by Visa can be painstakingly bad. Sometimes they simply do not work. I am speaking from personal experience, but when I have used these facilities, I have had to change my mind, and not buy the product at all. This could have negative consequences because customers could lose patience, and use rival websites rather than yours.
PayPal is a payment system that was founded in 1988 in California. It is owned by eBay, and on eBay, the only form of payment is through PayPal. PayPal is a very popular program among website owners as a payment system because it is popular with customers and is very efficient. It is operated by a customer making a PayPal account at a certain point using their bank account number, and then whenever they wish to make a purchase on a website that supports PayPal, all they have to do is log in with the username and password.
Advantages of using PayPal payment online
Popular with Customers
As of December 2013, there are 106 Million PayPal accounts active, they are available over 25 Currencies (Including Dollars, Euros, Pounds and Yen), and is active in 190 different countries around the world. This could benefit you as it opens the door for customers all around the world.
This is fundamentally the key to PayPal’s success, they save both payment and address details so that the customer merely needs to write in their password and username, and they will instantly have paid for the product, and their address details will have been submitted. It also saves all past addresses that the person has used. This is good for you because your customers will be more inclined to buy from your website because it saves time to use PayPal.
When customers see the PayPal logo, they instinctively trust that your website is legitimate. This is because when a PayPal transaction happens, the customer is automatically redirected to www.paypal.com to enter their username and passwords. This means that you will never actually know their PayPal password because PayPal will simply transfer the money from their account to your account, and supply you with their chosen postal address. This is good for you because will trust your website if they know you support PayPal.
If a customer was to use PayPal as a payment method, and the seller did not send the goods, PayPal would refund the customer (after seeing proof of purchase of course), and then they would track down the seller and get the money back from them, and possibly even prosecute them. This is good for you because customers would still buy from you, because even if the goods did go missing, then
If a customer buys from you using PayPal, then you will not be given address details until the money is securely in your account, so there is no chance of you sending off the product without being paid. Also, if the seller claims not to have received the item, PayPal will help you with the investigation, so long as you provide proof of postage. This is a positive because it stops you being swindled or victimised by a buyer.
Disadvantages of using PayPal online payment
If you sell a product through PayPal, you have to pay seller’s fees, which is a percentage of the sum that you receive. The sum is typically 1.4%-1.8% of the cost of the product for a UK Seller (other countries may vary), but that is less than the seller’s fee on a credit card, which is 2.5%. This could affect you because it is an expense your business, and if a transaction is large, then you will be handing over a substantial amount of money to PayPal.
If someone is buying a product from you, but they live in a different country, for example, France, this means they would pay in Euros. If your product was £10, then this would be around £12.13 (as of current exchange rate). PayPal would have a higher exchange rate than the official exchange rate, so they would gain money. This is a negative for you because it will make overseas customers have to pay more, and this may discourage them from buying from your e-commerce website.
Poor Customer Service
If you encounter a problem, or a scam online, then it is difficult to get decent customer service from PayPal, the internet has many negative online reviews from PayPal Business customers, who say when they have encountered problems, it has a been a lot of hassle to get the correct help. This could be a drawback for you because if you were to encounter a problem, you would use a lot of time trying to rectify it due to poor customer service.
Long Setup Time
It only takes a few minutes to set up an account, but the PayPal verification system takes much more
time and this can be very frustrating. When you link a bank account with your PayPal account, two small deposits are made into it, and you have to let PayPal know the amounts to verify you own the
account. The deposits normally take up to 5 days to appear which is five days when you can’t accept any payments online and if you don’t have access to online banking, then you have to wait for your bank statement to come through the post, and this could take up to three months.
The fact that credit cards hold a 2.5% service charge has also swayed me to believe that you should use PayPal as a way of your customers to pay you because this means that you keep more of the profit that you make. Because 1.8% is obviously less money, so you keep an extra 0.7% of the money that you make, which if you are selling thousands of pounds worth of products every day, really does build up and save you quite a bit of money.
However, I do think that popularity of credit and debit cards are a huge positive, and they are really a truly universal form of payment. Nearly everybody in the UK has a credit or debit card, along with most people in the developed world, and the same cannot be said for PayPal. Some people do not even know what PayPal is, and that can really be a negative, especially if you are trying to aim for a certain demographic, who may not be in the know about what PayPal is.
But in contrast to this, I think that the PayPal buyer protection is a deal breaker, because if you or a customer is a victim of a scammer, then you are guaranteed to get your money back, so long as you’re not buying illegal items, and this also means that the scammers will only have the money, and not be able to access your bank details.
I think that out of the two options discussed above, PayPal is a better payment system than credit or debit cards, primarily because of its convenience and its trusted name. PayPal can completely change the way that you usually do business, and this is a well-known online name to have on your website. Credit and debit cards do have their positives too, but I still think, with all things considered that PayPal is a more efficient payment system.