Instant gratification with minimal risk is something consumers have become very accustomed to, especially with the acceleration of eCommerce and digital services over the pandemic. After a purchase is completed, shoppers expect to have confirmation shortly after the payment with order details and delivery timelines for the purchased product or service. From a business perspective, merchants want this transaction to process and settle as soon as possible with minimal manual work and risk as well.
According to global research from Global Data, there were three key drivers for consumers using online payment methods; simplicity and speed (47.6%), using a secure service (26.1%) and using a trusted brand (13.2%). Using an alternative payment method like Sofort, which is a bank transfer product, offers this instant gratification for both consumers and businesses in a secure payment.
Bank transfers have grown significantly in value share of eCommerce transactions by payment method. Global Data research also revealed that, in 2020, bank transfers in Belgium, Germany and the Netherlands accounted for 30%, 23.3% and 7.4% of all online payment methods used, respectively. This is compared to just 18.7%, 15.2% and 14.3% in 2017. In this article of our series on alternative payment methods (APMs), we take a look at what Sofort banking is, how it works, which European markets prefer it as an APM and the benefits of integrating it into your business’ offering.
What is Sofort?
Sofort is a bank transfer payment method which serves customers throughout Europe. The payment product was developed by payment service provider, Sofort GmbH in Munich, Germany in 2005. However, in 2014 the company was acquired by Klarna Bank AB (Klarna) and was rebranded from Sofort to Klarna Pay now in 2017.
What is Pay now?
Klarna Pay now is the new name for the bank transfer payment method, Sofort. It is also referred to as “Klarna Überweisung” in certain European markets. Klarna Pay now enables consumers to pay online using their online banking details rather than entering in card details.
How does it work?
Sofort/Pay now acts as an online cash transaction, transferring funds directly from a consumer’s bank account to a merchant’s bank account. The funds are transferred in real-time and in the full amount. The consumer receives an immediate confirmation of the transaction, and merchants receive a real-time confirmation of the transfer order. This means the goods or services can be dispatched or downloaded promptly, which has numerous benefits to both you and your customers (we highlight later in the article!).
Sofort/Pay now payments can be made on mobile and desktop devices with minor differences in the user experience. Here’s a summary of the user experience for consumers:
- Customer clicks to pay for the product or service on a merchant’s website
- They get redirected to their online banking page
- They log in and confirm the payment by selecting their bank account of choice
- The order is on the way to the destination (merchant) bank account
- Funds are received in the destination bank account
What is the difference between Sofort and Klarna?
Sofort/Pay now is a bank transfer payment method owned by Klarna, whereas Klarna is a company that own several payments products, including their popular Buy now, pay later (BNPL) and Slice it methods.
What is the difference between a bank transfer and BNPL?
The key difference between a bank transfer and BNPL payment methods is that BNPL enables consumers to pay off a product or service in installments, whereas a bank transfer is a real-time online cash transaction between a consumer and merchant account for the full amount.
Are you thinking about expanding your APM portfolio to strengthen your presence in Europe? Take a look at our online payment solution.
What markets does Sofort / Pay now work in?
As of August 2021, there are 13 markets across Europe that Sofort/Pay now operates in: Germany, Austria, Belgium, Czech Republic, France, Hungary, Italy, Netherlands, United Kingdom, Poland, Slovakia, Spain and Switzerland. As part of our offering at emerchantpay, it’s currently available for our merchants in Germany, Austria, Belgium, Italy, the Netherlands, United Kingdom, Spain, Switzerland and Poland, with the list of countries constantly growing.
We highlighted in our regional payment series reports on Germany and the Benelux region that consumers across Europe have adopted more digital and alternative payment options. While Sofort/Pay n/is a great APM to offer across retail-focused businesses, it can also be added to payment portfolios across online gaming, EU-licensed gambling, remittance and forex industries as well.
What are the benefits of offering Sofort/Pay now as an alternative payment method?
Secure payments and fraud protection
Confidential login details and confirmation codes are not visible to merchants or any third party business, including Klarna. Details such as the amount and the beneficiary are already filled out thanks to the payment method integration. Therefore, once consumers enter their details, Sofort/Pay now can carry out the payment, securely.
It’s important to note here how crucial it is to have intelligent risk and fraud management processes in place that help ensure your customers that their information is safe in every transaction. Read our blog where we highlight the importance of payments security in detail.
A real-time transaction notification
Bank transfer payments like Sofort/Pay now help streamline the checkout process with a payment method your customers know and trust. In contrast with a regular online payment, the consumer only has to verify the payment after entering their online banking details. Once they click to process, they immediately receive a notification that their order has been processed with information and dispatch or delivery information, depending on the product or service.
This creates a seamless user experience with instant gratification, which is exactly what customers expect from their favourite brands. To offer this user experience, merchants must ensure they are integrated with the right PCI compliance requirements. Be sure to contact our payments experts to discuss this further and how our integration options vary to suit your specific needs.
No chargebacks
Another key benefit of Sofort/Pay now is that there are no chargebacks. A chargeback is the process of a customer requesting the amount they paid for a specific purchase from their issuing bank. If your business’ chargeback rates are too high, this can negatively impact your payments performance. We highlight more reasons on why it’s important to effectively manage chargebacks here.
It’s important to note there is still a level of risk to the business to consider. With bank transfers this risk is significantly reduced because it is seen as a cash transaction between bank accounts. Between consumers logging in and confirming the payment, a consumer still has an option to stop the payment, by calling their bank for example. This is not technically a chargeback if this happens, and it is in the responsibility of merchants to check funds have been received before a product or service is sent.
At emerchantpay, we’ve made a clear distinction of when we mark the transaction as approved to ensure our merchants receive clear confirmation of when funds have been received.
Are there alternatives to Sofort/Pay now?
Trustly and iDEAL are two bank transfer alternatives to Sofort/Pay now that emerchantpay offer as part of our global payment method portfolio. It is important to note that while these two payment methods are alternatives to Sofortt/Pay, every business must localise their payment offering to their target consumers.
For businesses looking to grow their presence across Eastern Europe, Trustly is a popular bank transfer method to offer that is specific to those local markets. As we highlight in our Regional roundup 2021: Benelux, iDEAL took up 43% market share in the total number of online payments made in the Netherlands in 2019. This number is set to have increased even further after the global pandemic.
Expand your offering with local payment options
As we mentioned at the beginning of the article, one of the top three drivers for consumers to use an online payment method is that they are a recognised brand name. Working with a payment service provider with a global acquiring network and an in-depth understanding of your local target markets and the preferred payment methods is key.
Our teams based across the UK and Europe have a deep understanding of the DACH region and Benelux markets, and can help merchants across many industries navigate the segmented payment landscape.
If you’re looking to optimise your payments offering, be sure to contact our team of experts to discuss our APMs and global gateway options!