The number of digital payments is nowadays increasing exponentially, since customers have grown accustomed to making purchases online and digitally, trend that is also spreading to the older generations. Recent research shows that Europe has the highest growth in digital payments compared to China and the United States, both considering Ecommerce and mobile POS payments. When looking at the UK specifically, with a transaction value of 218.3 billion USD in 2020 - projected to grow to 439.1 billion by 2025 - the UK appears to be the biggest digital payments market in the countries of the European region.¹
These market growth trends are a clear indicator of customers’ payment preferences at the moment around the world.
In the Ecommerce world, transactions can be customer initiated (CIT) or merchant initiated (MIT). The main difference is that the first type happens with the buyer presence during the transaction, while the second one without the presence of the buyer. Both CIT and MIT fall under the PSD2 obligations and need to be regulated and follow strong customer authentication (SCA) protocols unless they fall under the umbrella of SCA exemptions . MIT transactions however do not need SCA because of the fact that the buyer is not present during the transaction. However, MIT transactions need to follow a first transaction that underwent SCA authentication, in order to guarantee security for the buyer.
Let’s now look at COF or Card on file transactions, where – as you can tell by their name - card credentials are saved by the merchant and are used for future purchases, in order to make the buying process quicker for returning purchases. About storing card details, there are two options: either the merchants store the credentials themselves or they rely on an outside provider. In this case tokenization becomes an important factor to ensure the security of the stored sensitive information by replacing it with tokens, that by themselves have no meaning and cannot be used by anyone but the merchant itself. We have looked at tokenization more in depth in our insight on the topic and in Axerve’s whitepaper that you can download for free here.
However, let’s go back to card on file transactions. COF can be used in different ways. Firstly, a MIT transaction is always COF, because of the need to rely on card information for the transaction to be processed. However, some COF transactions are not merchant initiated: for example one-click payments on websites where you can buy using your stored credentials, initiating the transaction as a customer for a single purchase.
If you have a subscription business, you are already familiar with merchant-initiated transactions. However, what are their main aspects? Firstly, like we said they are initiated by the merchant itself. Secondly, the buyer is off-session. Finally, there needs to be an agreement between the parties. In fact, the payments that fall under this umbrella are the ones that, because of their business offering and nature, cannot be processed with a cardholder-initiated transaction, like for example all subscription-based businesses.
When it comes to the actual transactions, there are two steps:
Moreover, when looking at MIT transactions there are two types:
As mentioned before, depending on the type of business of your Ecommerce store, a type of payment might be optimal for your transactions. However, it’s helpful to know the possibilities and regulations that come with the different options. To keep up to date with payment trends and updates in the world of Ecommerce, sign up to our newsletter.
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