Taxonomy of Payment Methods

How is the payment made?

For businesses that accept payments online, making sure they deliver an enjoyable payment experience to their customers is a real challenge. A business can decide between three types of payment, which will be decisive in the nature of their settlement procedures:

COMPANY INITIATED

The customer communicates his payment details to the company which can initiate the direct debit at his convenience. This is the case for payments by credit card for which only the card details are necessary, or even direct bank withdrawals for example. It is important to know that in the case of payments initiated by the company, the company may not be able to confirm that the customer has authorized the transaction, or that the payment information has been entered by the owner. . As explained in detail above, these payment methods can present additional high risk merchant service and lead to the cancellation of payments for companies.

CUSTOMER AUTHENTICATED

The customer communicates his payment information and certifies being the owner of this information. The most relevant examples are payment methods that send a transaction-specific password, entered by the customer, or that require the customer to log into their account on a separate app or website. These payments often complicate the shopping experience and require the explicit intervention and consent of customers for each payment. However, as seen above, they offer companies additional guarantees against the fraudulent use of payment information, which frees them from their liability in the event of a dispute.

CUSTOMER INITIATED

The customer is instructed to perform all the necessary steps to send funds to a “destination” specified by the company. This is the case with bank transfers, in which the indicated “destination” is simply a bank account. Since these payment methods require action from the customer, additional delays may apply in receiving payments. However, companies have an important advantage: payments are in principle irrevocable by customers, so funds received cannot be inadvertently taken back.

How are companies informed of the arrival of funds?

The decision to fulfill an order is an important step in an online shopping experience. This processing is usually carried out after the seller receives a confirmation that gives him sufficient confidence in the completion of the payment by the customer and in the future receipt of funds. Two cases can arise for a company:

IMMEDIATE CONFIRMATION

These are cases where confirmation of payment execution occurs at the time of payment. This is the case for payments by credit card: the company receives a notification from the card network indicating that the payment has been made, and therefore that it can process the order. This does not necessarily mean that the funds have already reached the company, since this step can take several days. Rather, it is the most reliable information that the means of payment can communicate to confirm that the settlement of the transaction will be completed.

DEFERRED CONFIRMATION

The actual completion of the payment is communicated to the company several hours, days or even weeks later. In these cases, the company will have to optimistically decide whether or not to process the order at checkout, or wait for confirmation of payment, as it may ultimately fail. For example, wire transfer payments, where the seller debits funds from the customer’s bank account, may take several days after payment for the customer’s bank to accept or decline the debit. Likewise, payments by bank credit, whereby the customer sends funds to the seller’s bank account may also be delayed at the end of the day or until the next day.

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