Leseprobe
List of content
I. List of figures
II. List of abbreviations
1 Introduction
1.1 Issue and Objectives of the Thesis
1.2 Structure
2 Definitions
2.1 Definition of payment transactions
2.2 Definition B2B
2.3 Definition B2C
3 General requirements of an electronic payment system
3.1 Usability and convenience
3.2 Safety and reliability
3.3 Transferability
3.4 Confidentiality
3.5 Rentability and costs
4 Categorization of Payment options
4.1 Categorization according by payment date
4.2 Categorization according by payment amount
5 Internet payment systems
5.1 Classic payment systems
5.1.1 Invoice
5.1.2 Credit Card
5.1.3 SEPA Direct Debit
5.1.4 Prepayment
5.1.5 DIRECT banking
5.2 Modern payment Systems
5.2.1 PayPal
5.2.2 Apple Pay / Google Pay
5.2.3 Amazon Payments
5.2.4 Factoring - Using the example of Klarna
6 Currently most offered online payment methods by analyzing largest Online shops
7 Possible future payment methods on the Internet
7.1 Bitcoin
7.2 E-Euro
8 Three megatrends about the future of payment
8.1 Trend 1 - immediate
8.2 Trend 2 - frictionless
8.3 Trend 3 - transparency
9 Results of the survey
10 Final assessment
10.1 Summary
10.2 Outlook
III. Annex and Appendices
IV. Bibliography
I. List of figures
Figure 1: How much do Germans buy online
Figure 2: Overview of customers' requirements for payment systems
Figure 3: Systematization according to type of payment date
Figure 4: Factoring settlement scheme
Figure 5: Offered payment systems of 4 by the 10 largest online shops in Germany
Figure 6: Result from the survey: Most used online payment methods
Figure 7: Result from the survey: E-Currency for future Payments
Figure 8: Three megatrends of payment in the future
II. List of abbreviations
B2B Business to Business
B2B Business to Customer
BTC Bitcoin
ECB European Central Bank
ID Identifier
M2M Machine to Machine
PIN Personal identification number
1 Introduction
Trendy clothes, the latest electronics or interesting books, the shopping basket is quickly filled. Shopping on the Internet has become an essential part of modern life. Also due to the Corona crisis, the number of online purchases is increasing. Almost every German buy on the internet, 95% say they have bought their goods in an online shop.1 Products that were previously bought in stationary shops are being ordered from online platforms for the first time.
Figure 1: How much do Germans buy online
Editor's note: Tis imagine was removed due to copyright reasons
Source: WIN-Verlag GmbH & Co. KG, Online shopping behavior by Corona, 20201
In order to be able to keep up as an online provider, the selection of the offered payment methods in the online shop is an important point, to which every online merchant should pay enough attention. It was discovered that almost 80% of the customers abandon a purchase, if the payment method they prefer was not offered.2 This was also confirmed by the self-conducted survey. Here 132 out of a total of 149 interviewed persons confirmed, that they had cancelled a purchase because the desired payment method was not offered. It can therefore be assumed that a wider choice of payment methods will reduce the purchase abandonment rate and thus will increase sales for the merchant.
Many payment methods, familiar from stationary trade, are also available for payment processing in e-commerce. In recent years further procedures have been established, especially for the internet.
1.1 Issue and Objectives of the Thesis
The aim of this paper is to record the payment systems available on the market and to categorize them. The focus in this thesis is placed on the B2C Sector, as this is where most online transactions take place. It will then be analyzed, what significance the payment methods can have for the customer on the one hand, and for the merchant in e-commerce on the other. What are the current trends in payment methods, what are the future megatrends and therefore the future possible payment methods in online Shops? This are the main topics, this thesis is about.
1.2 Structure
Chapter 2 deals with the relevant definitions that are important for the thesis. The general requirements of a payment system are then discussed in Chapter 3 and finally categorized in Chapter 4. The classic and modern payment systems in the internet are discussed in chapter 5, including their respective advantages and disadvantages. Chapter 6 takes a closer look at 4 of the 10 largest online shops and analyses which payment systems are offered there and in generally, are most used today. Further in chapter 7 and 8, an outlook on possible future payment methods is given. A survey was also conducted for this seminar paper, which is discussed in chapter 9.
2 Definitions
In order to establish a reference and understanding, it is important for this thesis to understand what a transaction is and how it takes place. The definitions will now be explained in the following.
2.1 Definition of payment transactions
Whenever financial transactions are made to fulfil a consideration, for example a purchase, they are part of the payment transaction. It is differentiated according to the payment method in cash payment, semi-cash payment and cashless payment.3 For cash payment, either coins or banknotes are used. In the case of semi-cash payment, at least one of the two parties must have a bank account into which the payment can be made (Typical payment methods, for example, cash cheques, travelers' cheques or payment notes.) With cashless payment, on the other hand, both parties have a bank account. The payment amount is debited from one account and credited to the recipient's account either by bank transfer, direct debit or deductions. For the online payment is the cashless payment the common way.
2.2 Definition B2B
B2B is the abbreviation of the English term "Business to Business" and stands for the relationship between at least two companies.4
2.3 Definition B2C
B2C is the abbreviation of the English term "Business to Customer" and stands for the relationship between companies and end consumers. B2C companies are those whose customers are end consumers.5
3 General requirements of an electronic payment system
Payment systems on the Internet must meet a wide range of requirements, whether on the part of the retailer or the customer. At the same time, the requirements are often in conflict with each other. For example, a high level of security is usually associated with restrictions in ease of use. Acceptance, especially on the retailer side, is dependent on the costs that the system generates. The survey proved that the following aspects are important from the customer's point of view, ease of use is, among safety, flexibility, fast transactions and confidentiality, an important characteristic that a payment method should have.
Figure 2: Overview of customers' requirements for payment systems
Q7: What is important to you in a payment method? Please select the applicable answer options:
Answered: 149 Skipped: 2
Abbildung in dieser Leseprobe nicht enthalten
Source: Own representation based on own survey
It is therefore necessary to find the best compromise between the following factors, which are described in the following subchapters.
3.1 Usability and convenience
How useful is the best payment system if no one uses? Most online providers offer several payment methods so that customers can choose the one that suits them best. In addition, the ease of use also plays a major role in terms of acceptance, especially among customers. Most payment systems fail because they are difficult to use, and the customer must register with certain providers first. This is often a problem for older people, who generally have problems using a computer. These days, convenience is becoming more and more important. That's why many people use Face ID via the smartphone's front camera or the fingerprint scanning for authorization.6
3.2 Safety and reliability
As the internet is an open network, data can be "overheard" during the transmission. Payment systems must offer enough protection against attacks and exclude any abuse. Normally this security is achieved through data encodings. In addition, a very high stability is expected from a system for electronic money transfers. Functionality must be maintained even in the cases of external influences or complete failure of system components.
3.3 Transferability
Another important aspect is the transferability and reusability of the money transferred. The payment system must therefore ensure that the recipient of the digital money can use it for further negotiations.
3.4 Confidentiality
Details of the transaction, such as the identity of the buyer and seller, the product purchased, and the price are known only to the parties involved. The information remains confidential and secret from uninvolved parties. No third party should be able to spy out credit card or PIN numbers, for example.
3.5 Rentability and costs
A payment system is also expected to be able to process smaller amounts of less than €5 (micropayments). However, not every payment system can settle such small amounts economically, as partly high fixed costs are created. Companies should also consider the ongoing costs of operating several payment methods. Monitoring transactions and customer support associated with new payment methods are just a few examples of internal costs that can arise from managing several payment methods.7 The companies should also calculate the costs of the technical integration of a payment method. All in one, the cost factor on the side of the merchant is one of the most important factors in deciding whether payment methods should be offered or not.
4 Categorization of Payment options
There are many approaches to categorize the different payment systems. The two main approaches are the categorization by payment date and the categorization by payment amount.
4.1 Categorization according by payment date
In the literature, the systematization by payment date is very uniform. The payment options can be categorized into "Pre-Paid", "Pay-Now" and "Pay-Later". The following graph shows this:
Figure 3: Systematization according to type of payment date
Abbildung in dieser Leseprobe nicht enthalten
Source: Marius Dannenberg, Anja Ulrich, E-Payment and E-Billing, 2004, P.30
"Pre-paid" refers to the previous payment of a card, for example, which can later be used for payments.8 A classic example of this is the voucher. The "Pay-Now" procedure includes all payment options that allow immediate settlement of the invoice at the time of delivery, an example of this is the electronic direct debit procedure.9 "Pay-Later" means payment after delivery, for example payment on account within 14 days after receipt of the goods.10
4.2 Categorization according by payment amount
Depending on the amount of the payment, it can be also classified into the following categories:11
- Macropayments = > 500€, especially in the B2B sector
- Medium Payments = 5 - 500€, typical online purchases
- Micropayments = < 5€, especially for information and services
5 Internet payment systems
For payment processing in the online shop, a differentiation is made between classic payment systems and modern payment systems - which are both explained in more detail in the following subchapters. Nowadays, customers are placing more and more value on new e-payment methods such as PayPal, Apple Pay, Amazon Payment, Klarna and many more. Some selected methods are the subject of this chapter.
5.1 Classic payment systems
In classic payment systems, the transaction only takes place between two participants: The merchant and the customer.
5.1.1 Invoice
Payment by invoice is the most popular payment method among Germans. An invoice will be sent to the customer after the order has been placed. The goods are shipped, and the customer can usually pay the invoice within a certain period of time. As the customer only must pay after receiving the goods, they can be checked in advance and this gives the customer the flexibility to keep the ordered products or send them back without having to pay for them. The merchant has the disadvantages of this, such as the risk of non-payment and high insurance costs.
5.1.2 Credit Card
The credit card is also one of the most widely used payment options. Payment is made by credit card after the purchase has been completed via the credit card institute or the bank. Credit cards offer a high level of security and an automated payment process.12
5.1.3 SEPA Direct Debit
For customers who do not have an account with a common e-payment provider or a credit card, the Payment via SEPA Direct Debit is the easiest way. The principle is simple: The customer's account is debited as soon as the merchant request the money. Therefore, the buyer must submit his bank details in advance and allow the merchant to arrange the direct debit. The Direct debit is both safe and cost-efficient.
5.1.4 Prepayment
When payment is made in advance, the buyer and seller agree on a contract of sale. The parties, this time, agree on a reversed procedure. First the payment of the agreed purchase price takes place and then the handing over of the object of sale. This is the logic behind Prepayment. The seller forwards the performance risk to the customer. Nowadays, this variant is not attractive for customers, especially when the goods or the product are needed quickly. Payment in advance is rather error-prone, complicated to handle and quite time consuming. In addition, it requires a relatively high level of administration and thus costs.13 New customers in especially are not happy about having to pay by bank transfer before they receive the goods. A lack of trust in the seller or in the product plays a role here. Modern payment providers such as DIRECT banking or PayPal offer a solution to this problem.
5.1.5 DIRECT banking
DIRECT banking works via the customer's online banking. As soon as all necessary data have been transmitted, the seller receives the legitimation to collect the money from the financial institution himself.
5.2 Modern payment Systems
After the customer has completed his order and proceeds to payment, he selects the respective payment method. The customer is then redirected to the payment page of the payment provider, authorizes the payment, and will be then automatically returned to the merchant. In the meantime, the merchant receives the payment confirmation from the payment provider and can then initiate the shipment of goods to the customer.14 The use of electronic payment methods opens new possibilities of paying for online purchases. In addition to the traditional players such as merchants, customers and banks, there is another participant: a provider of an e-payment procedure.
5.2.1 PayPal
Easy, fast and secure payment15 - this is the slogan PayPal uses to attract customers. Over 80% of the 1000 most successful German online shops offer PayPal as a payment system. PayPal enables comfortable and easy online payment of money without the risk of credit card numbers being stolen. PayPal's innovation is to offer customers a virtual account that can be charged by credit card or bank transfer. Email addresses are then used to receive and send money.16
5.2.2 Apple Pay / Google Pay
Apple Pay allows you to pay directly via your Apple devices and offers a high level of security. Apple Pay is free of charge and works together with a bank, for example comdirekt.17 To use Apple Pay, all you have to do is store your credit card details on your Apple device. Every Apple device has a so-called "Wallet". This is where the credit card is stored. The credit card data, also called "tokens", are only stored in encrypted form. The Apple device now works like a normal credit card. With Apple Pay, the iPhone or Apple Watch can also be used to pay in retail outlets: from clothing shops to supermarkets to furniture shops.
5.2.3 Amazon Payments
Amazon Payments gives many customers a safe feeling when they shop online due to their previous experience shopping online with Amazon directly. The Amazon one-click purchase, which many of the users are probably familiar with, lends credibility to the web shop and sends a signal of trust to all new customers. The purchase is processed directly via the existing Amazon account and paid with the payment method stored there. This therefore takes up chapter 3.1 and relates it to the subject of convenience.
5.2.4 Factoring - Using the example of Klarna
Conflicts of interest mostly arise in connection with payment methods. The customers want to receive the goods first and then pay for them, while the trader would prefer to receive the money first and then ship the goods.18 Factoring can be a good solution for this:
Figure 4: Factoring settlement scheme
Abbildung in dieser Leseprobe nicht enthalten
Source: In accordance with Pape, Ulrich, Factoring, 2019, P.214
With factoring, a company sells its debts to a factoring company. In this way, the company receives its money earlier than waiting until the customers pay their bills and therefore paying in advance. The basis for this is a framework agreement concluded between the company (client) and the factoring company (factor). The company agrees to sell and transfer future debts against debtors to the factor. The factor, on the other hand, pays 80% of the value of the receivable directly to the company after the sale and the remaining 20% after the customer (third-party debtor) has paid. In addition, the factor also offers services such as the del credere function, which means that he also assumes the risk of non-payment. Therefore, the factor checks the creditworthiness of the buyer in advance.
The principle is simple: Klarna is a company that offers payment by invoice in many online shops. Payment by Klarna is secure and simple. As already described in the principle of factoring, the online merchant assigns his claim against the customer to the factor - in this case Klarna. The merchant is paid the outstanding amount immediately by Klarna and the customer must now pay the outstanding amount directly to Klarna. More and more online shops are offering the payment method with Klarna, as it brings advantages for both sides, merchant and customer.
6 Currently most offered online payment methods by analyzing largest Online shops
This chapter is about the most common payment methods currently offered by larger online shops on the internet. Therefore, it is analysed which online shops offers which payment methods. Analyzed are four of the ten largest online shops in Germany, which includes Amazon (10.49 billion euros), Otto (3.36 billion euros), Zalando (1.6 billion euros), and Mediamarkt (1.17 billion euros).19
Figure 5: Offered payment systems of 4 by the 10 largest online shops in Germany
Abbildung in dieser Leseprobe nicht enthalten
Source: Own representation
The Chart shows the above named four of the ten largest online providers with the respective payment methods they offer. Most of them accept payment by credit card, invoice, PayPal, prepayment, Voucher and direct debit. It is also noticeable that these are precisely the payment methods that customers also choose and prefer most, according to the own survey:
[...]
1 https://www.e-commerce-magazin.de/onlineshopping-wie-sich-das-einkaufsverhalten-durch-die-corona- pandemie-veraendert-hat/, Accessed on 18.12.2020
2 Cp. Weinfurtner, S., Auswirkungen der Digitalisierung, 2013, P.43.
3 https://www.billomat.com/lexikon/z/zahlungsverkehr/, Accessed on 18.12.2020
4 https://www.ibau.de/akademie/glossar/b-2-b/, Accessed on 15.01.2021
5 https://www.ibau.de/akademie/glossar/b-2-c/, Accessed on 15.01.2021
6 https://www.econsor.de/magento/magento-news/die-zahlungsarten-in-online-shops/, Accessed on 15.01.2021
7 https://stripe.com/de/payments/payment-methods-guide, Accessed on 15.01.2021
8 Cp. Salmen S., Electronic Relationship Marketing im Bankgeschäft, 2013, P. 149
9 Cp. Dannenberg M., Strategisches Bankmanagement, 2013, P. 30
10 Cp. Dannenberg M., Strategisches Bankmanagement, 2013, P. 31
11 Cp. Merz, M.: Electronic Commerce - Marktmodelle, Anwendungen und Technologien, 1999 P.86
12 https://www.ecommerce-leitfaden.de/ecl-v2/141-kapitel-4-zahlen-bitte-einfach-schnell-und-sicher, Accessed on 16.01.2021
13 https://www.vexcash.com/blog/pro-contra-der-zahlungsarten-im-e-commerce/, Accessed on 16.01.2021
14 https://www.vexcash.com/blog/pro-contra-der-zahlungsarten-im-e-commerce/, Accessed on 21.01.2021
15 https://www.paypal.com/de/webapps/mpp/home, Accessed on 21.01.2021
16 Cp. Qureshi, Finanzrevolution am Horizont, 2019, P. 1
17 https://magazin.comdirect.de/finanzwissen/konto-und-karten/apple-pay, Accessed on 21.01.2021
18 Cp. Lammer, T., E-Payment-Systeme: Treiber einer notwendigen Evolution der Zahlungssysteme, 2006, P. 421-423
19 https://t3n.de/news/10-groesste-online-shops-umsatz-1323394/, Accessed on 23.01.2021
- Arbeit zitieren
- Anonym, 2020, Online Payment Methods. Current Trends and Future Possibilities, München, GRIN Verlag, https://www.grin.com/document/1027447
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