The Fragmented World of Online Payments

The experience of shopping in-store typically involves time and energy strolling through the aisles, rummaging through options and price comparing.

Then, the checkout often takes just a fraction of the time it took to select the perfect item. Oddly, the online shopping experience is the opposite, with shoppers easily finding the perfect item thanks to intuitive search, then struggling to get through the lengthy e-payment process. This process often involves inputting numerous layers of data, from a credit card number and expiration date to your mother’s maiden name.

A number of payments companies have attempted to make online purchases as seamless as the in-store experience.

As a result, the payments world – including in-store and online – is more fragmented than ever and e-commerce continues to dramatically evolve. While consumers have dozens of ways to pay, the pros and cons for each option may not be clear to the average shopper. Here’s a quick snapshot of some of the most common and emerging options.

Automated Clearing House (ACH) Payment

This processing allows a consumer to make an online purchase using funds directly from their bank account. Consumers can benefit from avoiding additional transaction fees, but ACH payments have been susceptible to fraud in recent years.

Credit Card

The most common option for online payment in the US is via credit card, like Visa or American Express. To complete the transaction, the consumer must input their account details and settle the fee with the credit card company at a later time, typically with an incremental fee attached.

While credit card transactions have precautions in place to prevent theft and fraud, there are still security concerns. Fortunately, October 2015 marks the US governmental mandate that all credit cards active in the country display EMV (Europay, MasterCard, Visa) technology.

Those credit cards are embedded with a microchip processor that encrypts transaction data for each purchase. This smart technology – which has been common practice in Asia and Europe for decades – translates to security against certain types of fraud, enhanced cardholder verification, and increased user data storage.

Payment Service Provider

Many retailers have opted to integrate or accept Payment Service Providers (PSPs) into their checkout experience. This allows consumers to use accounts with companies like PayPal, Google Wallet, or Amazon Pay to complete their purchase.

PSPs often offer added security for members, including fund remittance, fraud protection and other risk management services. They can also promise convenience through additional services like mobile app activation, e-check processing, and more.

Similarly, companies like Klarna are providing a ‘buy now, pay later’ solution, allowing consumers to buy easier with just top-of-mind information.

Klarna enables shoppers to enter at most an email address and postal code to buy, then assumes all risk, pays the merchant and settles the bill with the consumer within 14 days. The consumer can pay later with whatever method they prefer. This process separates buying from paying, making it easier for the customer to order an item and settle the bill with whatever payment method they choose after they have the product in hand.

With so many payment options, it’s important for online shoppers to do their homework and find the best solution that marries both convenience and security.

Brian Billingsley is CEO of Klarna North America, a global payment solutions provider founded in Sweden. Brian brings an extensive background in payments, retail loyalty solutions, and marketing. Prior to joining Klarna, he served as the director of strategic business development and partnerships at Alliance Data, director in the Enterprise Strategy group of FIS, and as a consultant at eCom Advisors. Klarna has simplified buying for the customer, which results in increased sales conversation rates, increased average order value, and simplified operations for merchants. The company has 25 million users and 45,000 retailers including ASOS, Spotify and Vistaprint and is a game-changer for any retailer doing business online.