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Limitations of Online Card Payment Systems

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedJul 20222 min read

There are more online payment methods than ever before, from apps like PayPal to buy now pay later services like Klarna. Yet debit and credit cards remain the overall payment method of choice for American consumers, making up half of the average 35 monthly payments a typical consumer makes. Trusted and secure, there are numerous advantages to using an online card payment system.

With that said, there are also some disadvantages of accepting card payments that any merchant should be aware of. So, what are the limitations of online card payment systems? Here are a few challenges to keep in mind.

The disadvantages of credit card payments

Whether you opt for a payment gateway with a merchant account or a full-service payment processor, there are benefits to using an online credit card payment system. Customer familiarity is one of the key advantages, as is convenience.

However, there are also disadvantages of accepting card payments including the following.

1. Transaction fees

When you start comparing online card payment systems, you’ll see that all come with fees attached. You’ll pay a flat per-transaction fee which varies by network.In 2021, the average credit card processing fee varied between roughly 1.3% and 3.5%, not including the additional fee you pay to the payment processor.

Credit card processing fees include both interchange and assessment fees, which are mandatory base costs of each transaction charged directly by the card networks. Your payment processor will also take a cut in the form of a per-transaction fee and/or monthly service fee, not to mention the equipment needed for online processing, if applicable. Other fees might apply depending on whether your transaction is domestic or international.

2. Card-not-present fraud

Another limitation of online card payment systems to be aware of is the risk of identity theft and fraud. While credit and debit card payments are extremely secure, cybercriminals are always looking for any weaknesses. Ecommerce businesses must be on high alert for card-not-present fraud, which is when a person attempts to use stolen card details to make a purchase on your website. Strong consumer protections mean that the business is often on the hook with lost revenue when the card issuer refunds the buyer.

3. High payment failure rates

One serious limitation to online card payment systems is the issue of failed payments. This can happen for several reasons, particularly when customers store their card details on ecommerce sites for future purchases or subscribe to recurring services. They might forget to update their card details when issued a new card. If card details are expired, the payment will be rejected by the issuing bank. Similarly, it’s possible to mistype card details or make other small, yet significant, errors that can prevent the payment from going through. Late or failed payments must then be chased up on by the business, resulting in customer churn.

Are there alternatives to online card payment systems?

With high fees and the risk of failed payments, you might be wondering how to transition away from online card payments. Digital wallets, in-app payments and bank transfers are all alternatives to explore. Perhaps one of the best options is to collect payments directly from a customer’s bank account using direct debit. GoCardless is a payments platform suitable for taking one-off and recurring payments, all backed by the security of open banking technologies. With money pulled directly from bank accounts, using direct debit leads to reduced failed payment rates as well as less churn. Our Success+ technology also uses payment intelligence to recover an average of 70% of failed payments.

The fact remains that there are plentiful advantages to accepting card payments as well. The best course of action for most businesses is to offer a variety of payment methods, including both card and alternative methods, to cater for all customer payment preferences.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.