Shopping cart abandonment is a huge problem for online businesses. According to Statista, the worldwide abandonment rate is at nearly 70%. Repeat with us: an alarming number of 7 out of 10 customers add items to their carts but do not complete the purchase.
The question is: Why does this happen? What causes customers to leave? There are a number of possible reasons. Maybe they get distracted. Maybe they were just browsing. But very often, the reason is that the checkout process and the payment transaction are too complicated, and customers give up in frustration. Thus, you need to optimize your checkout process.
A study of US adults examined the problems why users abandoned their shopping cart during checkout. One of the most prominent reasons: extra costs that were considered too high, e.g., shipping, taxes, or additional fees. Also, the checkout process was either too complicated, the customer didn’t trust the site with their credit card or debit card info, or the online shop did not offer enough payment methods. The good news is that a payment service provider (PSP – also known as ‘Payment as a Service Provider’ PaaS) can help you address many of these problems and provide a streamlined, high-converting checkout process.
How Does Payment Processing Work?
When customers make a payment, it is a (hopefully) seamless experience for them. But there are a lot of things going on behind the scenes. Let’s take a look at the card processing when a customer pays by credit card. The customer completes the checkout process by entering a credit card number into a payment gateway. The payment gateway is the customer-facing form (or device, in a retail store) that collects the credit card data. From there, a payment processor processes the credit card data to transfer funds from the issuing financial institution (the bank that issued the credit card) to an acquiring bank (the merchant’s bank).
Businesses can either set up their own merchant accounts for each type of payment they plan to accept — which is often a complex process — or they can choose to work with a payment service provider. Such a payment service provider has its own merchant accounts and processes everything on behalf of the business.
The Difference Between PSP and Merchant Account Providers
Merchant account providers and PSP both allow businesses to accept online payments, but they have some important differences. For instance, a merchant account provider gives each individual business a unique identifier (MID; also known as merchant identification number). A business can apply for a MID to accept payments from Visa, for example, and that MID will be theirs alone. Merchant accounts can quickly get really complex with rigid contract conditions when they are considered a “high risk account”, for instance, when accepting different currencies or surpassing a certain sales threshold.
A PSP or PaaS, on the other hand, creates a single account and gets a single MID from Visa, then processes Visa payments for its customers using that one MID. So they act as a “payment aggregator”. It does this for many different payment methods, which allows its customers to accept the different payment methods without the effort of setting up all payment options separately.
Payment Service Providers
Payment service providers offer merchants the ability to accept a wide variety of different payment methods without needing to set up merchant accounts with each individual payment provider. The PSP payment processes the entire payment transaction from the initial authorization to the final settlement and ensures funds are transferred from customer accounts to merchant accounts. PSP payment also provides other services that ensure that the merchant has a smooth experience and can maintain a clear overview of all transactions from the different payment methods.
Some PSP providers are:
Learn more about those and other providers in our payment service provider comparison.
Payment Methods Explained
Payment methods are different ways that customers might use to pay for a purchase. Businesses decide which payment methods they want to offer, and customers choose their preferred option during the checkout process. Some common payment methods throughout Europe are:
Card payments, e.g., credit cards like MasterCard or Visa
Direct debit payments
Digital wallets such as PayPal, Amazon Pay, Apple Pay, or Google Pay
Cash on Delivery (COD)
Buy-Now-Pay-Later providers such as Klarna
There are also many alternative payment methods that are preferred in certain parts of the world. For example, some regions may prefer cash vouchers as payment, and in China, Alipay and WeChat Pay are among the most popular payment methods.
Why You Should Offer More Than One Payment Method
Quick and convenient checkout improves online shop conversions, as does offering a variety of payment methods. This is especially important in Europe because customers from different regions and countries usually have different preferred regional payment methods.
If you are expanding to additional target markets, you’ll want to offer your new customers payment methods that they know and trust. This could include services like cash on delivery, cash vouchers, or other locally preferred payment methods. You’ll also want to let customers pay in their local currency because a more convenient, familiar shopping experience will increase your conversions.
The Benefits of Working With a PSP
Working with the right payment service provider will make your business much easier to manage. You’ll be able to offer customers a localized shopping experience with their preferred currency and payment methods. A PSP will help you streamline your bookkeeping and payment processing so that you can focus on your core business.
Some payment service providers also provide additional value-added services to their customers, such as:
Risk management to help businesses detect, prevent, and address fraud
Optimizations to increase authorization rates and conversions
Transaction reporting to help businesses understand their customer behavior
Ensure security/PCI DSS Compliance
How to Choose the Right eCommerce Payment Service Provider
If you’ve decided to integrate a PSP into your online shop, there are several questions you should ask to make the right decision.
Does the PSP offer multiple payment methods or currencies? As we’ve discussed above, this is essential for international business (and good for any business, really).
Does the PSP contain a consistent, well-documented API?
What does the onboarding process for platforms, merchants, and customers look like?
What customizations are available? Depending on your business needs, you might want a plug-and-play solution, or you could need a customizable process.
How are PSP reports organized and how often are they sent?
What pricing structure do the payment service providers offer? Is there a fee per transaction, a flat rate, or a combination of both?
The Better the Checkout, the Happier Your Customers
Businesses everywhere are faced with the challenge of giving their customers the best possible shopping experience, even as the world of eCommerce is changing rapidly. A streamlined checkout process, a variety of payment methods, and a smooth transaction can help to ensure that your customers don't abandon their shopping carts at the last minute. And a good PSP can help make your life easier as a merchant. With a payment service provider, you’ll be able to offer your customer preferred payment methods, their local currency, and a smooth payment process with a minimum of effort. And therefore a PSP will free you up to focus on what you do best: growing your core business.