Consumer Payments

Deep Dive: Analyzing Consumer Payments' Inner Workings

Most financial experts agree that the very first online purchase using secure credit card rails occurred in 1994, when 21-year-old college student and eventual payments entrepreneur Dan Kohn sold a Sting album on one of the world’s first eCommerce marketplaces.

Digital payments burgeoned from this humble start to eventually serve the millions of users who digitally purchase goods and services daily. American consumers spent $211.5 billion in the second quarter of 2020 on eCommerce purchases, driven online both by preference and by the effects of the ongoing pandemic.

This digital momentum has encouraged online merchants to facilitate shopping and payment experiences that meet consumers’ needs, especially as they evolve during the pandemic. This shift also sheds new light on the consumer payment process itself.

The volume of eCommerce shopping and online payments has continued to swell since the pandemic’s beginning, with recent reports now projecting the value of digital payments globally to reach $4.4 trillion by the end of 2020. This shift to digital payments coincides with a decline in use of traditional forms of payment, such as cash and checks. According to one survey, 63 percent of consumers stated they are using less cash to make their purchases, for example.

Clearly more consumers than ever are relying on digital payments, the speed, security and efficiency of which are now vital to engaging and retaining customers. It is incumbent upon merchants to examine and reconsider how they process and support consumer payments in light of the pandemic. The following Deep Dive explores the inner workings of consumer payments, detailing how expectations surrounding them have changed and what needs to be done to augment them for a future where online payments are the rule — not the exception.

Consumer Payments, Step By Step

Card networks, payment acquirers, payment issuers and merchants all have their own roles to play in processing payments, starting from when consumers give their payment details to when those payments are actually fully completed. Each aims not to add undue friction into this process for consumers. It is key for these players to understand how payments experiences must be adapted as consumers ditch their old shopping and payment habits in favor of more innovative solutions.

Transactions first originate either on merchants’ in-store point-of-sale (POS) systems or via their online websites — the only part of the process where consumers are active participants. The details of the users’ credit or debit cards then pass through payment gateways that add another layer of security to this information before it reaches payment processors, the entities responsible for making sure consumers’ names and card details are accurate. Payment processors then relay this information to cardholders’ banks, details return to the payment processors and the money is finally routed to the merchants’ banks. This is slightly more complicated than the process consumers see, in which they simply make the payments and then expect to receive confirmation of their transactions near-instantly.

Consolidating consumer payments in the time frame consumers and merchants often expect is not without its challenges. Stringent transaction authentication is needed to swiftly ward off fraudsters, for example. The pandemic has added to the fraud challenge, unfortunately, while also creating new complications for these entities, including increased adoption of payment methods outside of debit and credit cards that append new touch points to these transactions, such as P2P or mobile wallet apps. Coping with these changes is nevertheless essential for payment entities because more consumers are using digital payments as their primary way to pay for their goods.

The Pandemic's Impact On Jump-Starting Digital Payments

The pandemic has not only changed how transactions are processed but has upped the stakes for players involved in the process. The accelerated shift to digital has pressured institutions to ensure faster and seamless transactions, while leading consumers to place more scrutiny on their security and convenience.

A recent study found that 82 percent of consumers did not agree there was a “satisfactory” balance between the convenience and security of their chosen payment methods. The study also found that most consumers still consider card-present payments — those they make at brick-and-mortar stores with their credit and debit cards physically — to be more secure than online or card-not-present transactions. Only one-third of those users surveyed in the study thought card-not-present payments were the more secure option, even as other reports point to increased adoption of online and mobile payments.

This is a key shift that stakeholders in the consumer payments ecosystem must watch over, especially as the country works to emerge from the economic slump and other ongoing threats. Consumers already abandon online purchases at the slightest hint of friction and are now searching for assurances that their online payments can be made securely and swiftly before they click “buy.” Not fulfilling these expectations could negatively impact merchants’ finances as well as those of payment processors. The entities responsible for supporting these payments will need to carefully consider how they can keep digital consumers happily transacting as their expectations and options continue to change and expand.



Banks, corporates and even regulators now recognize the imperative to modernize — not just digitize —the infrastructures and workflows that move money and data between businesses domestically and cross-border.

Together with Visa, PYMNTS invites you to a month-long series of livestreamed programs on these issues as they reshape B2B payments. Masters of modernization share insights and answer questions during a mix of intimate fireside chats and vibrant virtual roundtables.