Choosing safe payment methods: How to protect your online transactions

Digital payments carry an unfortunate risk of fraud. So choosing safe online payment methods is vital to protect funds and keep revenue flowing. Indeed, online merchants lost nearly 3% of ecommerce revenue due to payment fraud in 2022.

Not only do safe payment methods protect you from the financial loss of cybercrime, they also shield you from reputation damage that can have far-reaching consequences for your business. 

But which methods are safe for accepting payments online? There have never been more options to choose from, and not every single one is right for you and your customers. 

In this article, we explore five of the safest ways to pay online: virtual cards, digital wallets, prepaid cards, ACH payments, and cryptocurrency. We'll go through how they work and what makes each of them a more or less secure transaction option. 

Mitigating risks of online payment

Payment data theft is a major concern for online buyers. The more your sensitive payment data is exposed to online networks, the greater the risk of interception and misuse of your funds. For that reason, all companies that come into contact with customer payment card data must align with strict protocols from the Payment Card Industry – most notably, the Data Security Standard (DSS). If a company cannot comply with these tough data protection regulations, then they will have to use a method of processing payments that ensures cardholder information is shielded (hidden) from their networks.

It stands to reason, then, that seven in 10 customers prefer to use payment methods that don't share their financial information with the merchant they're buying from. This helps to keep the cardholder's account details safe, as well as ensuring the merchant doesn't face legal liability for compromised payment data.

Unless a merchant is certified to meet the highest level of PCI compliance, then it's not allowed to read and store financial account data. You can learn more about compliance levels with PCI in our guide to SAQs.

But for now, let's get back to the main matter at hand, the safest methods for sending online payments.

Safe online payment methods

Discover five safe online and alternative payment methods for worry-free transactions, below.

1) Virtual cards

Definition: A virtual card is a type of temporary payment card that, rather than being physically issued as a plastic card, exists exclusively in a digital format. It's typically connected to a recognized card scheme, such as Mastercard, meaning it's subject to strict data security protocols and industry standards.

Why it's safe: A financial institution generates a virtual card featuring a unique card number, expiration date, and security code that are linked to the user’s funding account. In this way, the raw funding account details are shielded from third-parties such as merchants, online actors or even payment processors.

As they are digital and replace your actual card details, they cannot be physically lost or stolen and are harder to use fraudulently. Even if a hacker manages to steal virtual card credentials, it’s quick and easy to block the card and generate a replacement.

Further safety benefits: Virtual cards offer more payment controls than typical payment cards. For this reason, they're favored for use in B2B transactions, such as paying suppliers. The card program manager can configure settings for each individual card such as spending limits, authorization protocols, and fraud risk controls. Cards can be created for single or multiple uses.

In B2B transactions, virtual card credentials are transmitted in a corporate-to-corporate (system-to-system) environment, without manual intervention. It’s therefore much safer compared to the manual input of card details from a physical card.

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2) Digital wallets

Definition: A digital or mobile wallet is an application that allows users to store and manage credit and debit cards on their digital devices, which they can then use to make online transactions without having to reenter their card details. 

Why it's safe: Digital wallets are an exceptionally safe payment method because they employ many complimentary layers of protection. The user unlocks their mobile device using a password or biometric confirmation (such as a face scan). Then they may need to verify the payment itself using an account log-in, one-time password, or in-app verification.

Thanks to the multiple layers of authentication needed to send payment via a digital wallet, such alternative payment methods reduce the chances of a chargeback. The user's authentication is digitally recorded, meaning a merchant can simply retrieve it from the transaction request if a payment dispute is raised.

Shielded payment data: Digital wallet payments typically employ tokenization and encryption. Tokenization involves substituting card details with a "token" during transactions, meaning no sensitive financial data is exposed to fraudsters. Encryption further helps to conceal payment data and ensure the authorized payee receives it safely.

This multi-faceted approach to security makes digital wallets one of the most secure online payment methods.

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3) Prepaid cards

Definition: Whether a prepaid card is physical or virtual, you can think of it as a gift card: it only provides access to a certain amount of funds. So, if a prepaid card is stolen or misappropriated, only the preloaded funds are at risk.

Why it's safe: In a similar fashion to virtual cards, prepaid cards are a very secure online payment option because they have strict use limits. Secondly, prepaid cards are often created for a specific purpose – for example, spending on a particular product type or with a particular retailer – meaning they can’t be used for any other types of spending.

Moreover, prepaid cards are not directly linked to a particular bank account and don’t require any sensitive financial data sharing. A prepaid card payment is typically facilitated by a registered card network such as Diners Club or Mastercard. This means you're protected by the terms and conditions associated with the network's particular card program.

Why it's less safe: Although they are simple and easy to use, prepaid cards do not offer the same level of cardholder protection as traditional credit cards. For instance, it's unlikely you'll be able to raise a payment dispute and secure a chargeback. It's also just as easy to lose a prepaid card as it is cash, check, or any other plastic card.

Merchants must also remain vigilant against prepaid card fraud, such as the use of stolen funds to make purchases via prepaid cards. Accepting prepaid card payments may limit a merchant’s ability to investigate the source of funds and comply with anti-money laundering procedures. 

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4) ACH payments

Definition: An ACH payment is an electronic transaction between US bank accounts. It uses the Automated Clearing House (ACH) network, rather than a credit card network such as Discover or Mastercard.

Why it's safe: ACH payments must meet strict payment messaging standards, and account details are protected during processing. This means ACH payments are much harder to forge compared with paper checks, and account details are much more secure. Checkout.com offers a bank account verification solution (through Plaid) which helps merchants to meet compliance requirements and reduce fraud.
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To enhance its security credentials further, ACH also uses encryption and tokenization. These combined safeguards make ACH payments a highly secure and reliable method of electronic fund transfer.

The ACH network is heavily regulated, so it is subject to strict oversight by federal laws. NACHA (National Automated Clearing House Association) is the main body regulating the ACH network, along with the Federal Reserve, the Financial Crimes Enforcement Network (FinCEN), and other federal bodies.

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5) Cryptocurrency transaction

Definition: A cryptocurrency payment refers to any decentralized digital or virtual currency that's transacted on a distributed public ledger known as the blockchain: a shared digital ledger that’s distributed across a large number of computers.

Why it's safe: Every time a cryptocurrency transfer takes place, it's authorized, and a new block is created on the blockchain, which is sent to every computer in the network. This distribution ensures that a block cannot be altered without the consensus of the entire system, rendering it effectively immutable. 

Instead of a bank account, a crypto user stores their assets in a private wallet of their choosing; either a non-custodial wallet – where the user is responsible for storing and managing the private keys – or a custodial wallet, where a third party is given permission to hold the private keys.

Why it's less safe: There is no mechanism for reversing a blockchain transaction, which means you can't get your money back if you send it to the wrong party or want a refund for inadequate goods or services. This is comparable to wire transfers, which work on a similar principle. By contrast, credit card users usually have a right to a chargeback in the event of a legitimate payment dispute.

Caution: Not all countries allow payments with cryptocurrencies, so you should ensure you check the regulations of the country (or countries) you are sending payments from and to. If you carry out cryptocurrency transactions in an unregulated marketplace, you're unlikely to have any legal recourse to recoup potential losses.

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What makes an online payment safe?

A couple of different factors affect how safe your online transaction is. Since there are multiple parties involved in transferring funds between the customer and the merchant, it's important to consider the trustworthiness of each one. Here's a quick overview with examples:

• If you're paying through a website, there should be a valid HTTPS security certificate displayed in the URL
• The business' registered address should be clearly displayed somewhere, with details of how to contact customer service
• The payment gateway must meet payment industry standards, such as PCI DSS (if handling credit card payments)
• The payment provider must comply with relevant regulatory and technological standards
• The payment method (such as PayPal, Venmo or WeChat Pay) should be secured with a password, biometric authentication, or two-factor authentication
• Your financial institution (such as your bank or credit union) can help to initiate payment disputes, such as a chargeback request (if you paid with a credit card)

Use safe payment methods with Checkout.com

Ensure your payment security with Checkout.com. Our payments platform facilitates dozens of different payment methods, allowing you to offer customers ways to pay that work for them. 

And to further enhance your security, Checkout.com gives you access to advanced customer verification protocols like 3DS, which uses multi-factor authentication to approve payments. We also offer a robust fraud detection tool that combines machine learning and flexible rules to root out criminal activity while increasing your acceptance rates. 

The way your payments tech stack is set up greatly influences digital transaction security. For instance, a single payments API provides fewer attack vectors for fraudsters to attempt data theft. That's why the Checkout.com Unified Payments API (UPAPI) will help your business remain secure and compliant across various jurisdictions.

Furthermore, merchants can achieve PCI compliance SAQ-A by using hosted acceptance offerings such as Checkout.com’s frames, hosted payment pages, and payment links. These solutions eliminate the need for merchants to collect, transmit, or store sensitive payment data, providing a more secure payment processing environment.

Find out more about business payment methods with Checkout.com or speak to one of our experts.