By now, everyone has figured out there are different kinds of e-payment systems for shopping online but no one has really classified all the kinds we have here. I took time out to check, and all I saw were lists of payment service providers with vague explanations lifted off their websites so I decided to classify all the ways there are to pay online.
Historically, Payment Service Providers or Payment Gateways were the technical connection between the merchant’s online shop and banks processing the transaction. Today, many of them are licensed processing companies, operate on an international scale, and collect and settle merchant funds. For the sake of brevity, I have divided all the types of payment service providers into 3 broad fields with some babies.
Cards could be seen as the ‘electronic key’ to the consumer’s bank account, whether it is a deposit (debit), a loan (credit) or a stored value (prepaid). Cards can be used to ‘unlock’ and transfer the shoppers money to the online merchant. There are basically 4 types of card payment options, 3 have been mentioned above but only one is largely used in Nigeria, which is the debit cards issued by your banks on behalf of card companies like MasterCard, Visa, and Verve by Interswitch.
MasterCard and Visa card are the world’s dominant players, and card processing companies like Paypal, Interswitch, and eTranzact build their own payment gateways to enable online local payments with your cards on the merchant’s site. You would notice many other payment service providers like GTPay, Paga and Simple pay depend on Interswitch’s open system architecture to process card payments on behalf of their clients.
Digital Wallet Payments
These digital wallets are the virtual look-a-like of our physical wallets. These digital wallets can contain credit cards, debit cards, gift and loyalty cards and provide access to alternative payment methods like online bank transfers. Some wallets allow the consumer to preload money into their wallets. There are basically two types:
Preloaded Digital Wallet
A Preloaded Digital Wallet is a wallet which is prepaid and has e-money preloaded to use as an alternative to cash. This is very similar to what mobile money service providers like pocketmoni by eTranzact provide. Users of the wallet have to fund the wallet before they can pay for an online transaction. They can add funds to the wallet via various ways of payment such as cards, mobile money agents or banks. The balance on the wallet is used to pay for online and mobile transactions. You might also have noticed that some e-commerce companies also have their own preloaded wallets; for example, Dealdey
Pass-Through Digital Wallet
A Pass-Through Digital Wallet is where the digital wallet authenticates the card owner, but the transaction is being settled on a linked payment system, such as a bank account, or debit card. The user of the Wallet is not using the funds stored in the Wallet but selects during the moment of payment one of the ‘stored’ payment methods to finalize the payment to the merchant. Simply, click and pay. This is similar to services provided by KongaPay and Google wallet, although they have varying operations in delivering this service. KongaPay links to your bank account while Google wallet links straight to your card.
Traditional Preloaded Digital Wallet companies in Nigeria would have to obtain a PCI DSS license for them to offer the pass-through digital wallet system. Basically, the license signifies that the major card companies certify the payment provider as legitimate and that the company has taken arduous steps to build proper infrastructure to fight fraud and protect its customers. Konga found a work around by signing on agreements with Nigerian banks.
Alternative Payment Methods
Alternative Payments are somewhat traditional but it brings both the consumer and merchant great ease of mind. Alternative Payments like online bank transfers and direct debits are often associated with low and fixed transaction costs, safe and secure transaction types, guaranteed payments and swift settlement. These are the common three:
These payment methods connect with the shoppers bank where the shopper can authorize a transfer. The transfer is prepared by the merchant and only has to be authorized by the shopper within his own online bank environment. Similar services include: GTpay and KongaPay. KongaPay took this a notch higher by integrating shopper’s bank accounts with theirs and still offering full escrow service that allows you to cancel the transaction even at the last minute and get your money funded back to your account from its escrow service.
A payment method where the merchant automates the withdrawal of funds from the shopper’s account on a particular date based on pre-arranged agreements, it’s almost the electronic equivalent of a standing order. In most cases, a mandate (either paper or electronic, with different levels of authentication) is required. This is a not so common practice here; typical occasions where this happens, is when you’re on a subscription model, maybe your hosting provider or Gmail for work. You would simply set up your billing account, your card will be kept on file by the merchant and your bank account will subsequently be deducted for subscription charges.
Cash on Delivery
The joy of online shoppers and the bane of online merchants; this payment option allows buyers to make payments at the time of delivery in cash or through point of sale terminals. I really don’t need to talk about this, Lanre Akinlagun, founder of Drinks.ng, already did justice to this.
Are there any other online payment methods in Nigeria we might have missed out? Let us know in the comments section.