If you run or own an online business, the payment processor you select directly impacts your potential success. Your customers want to make convenient and secure payments with their debit and credit cards—over 70% of Americans own a credit card, and there are a reported 2.8 billion cards worldwide. Without a high-quality payment processor that can handle those types of payment transactions, you run the risk of an unsecured system and could miss out on potential sales.
Plus, the credit card was the most used payment method in 2020, and when combined with debit card payments, both transfer methods accounted for 67% of transactions through a Point Of Sale (POS) machine. In e-commerce, if you don’t have a payment processor, you are missing out on one of the largest consumer markets.
To help you and your business succeed in the digital world of e-commerce, we will outline the key benefits a payment processor offers, list out important payment processor selection criteria, and flag any potential issues that may arise as you integrate new software. Read on to learn how to select the perfect payment processor.
Table of Contents:
- The importance of Choosing the Right Payment Processor
- Criteria for Choosing the Right Payment Processor
- How Choosing the Right Payment Processor Impacts your Business
- Potential Problems when you Select the Wrong Payment Processor
- Popular Payment Processors
- Additional Information on Choosing Payment Processor
The Importance of Choosing The Right Payment Processor
Beyond the immediate convenience you give to your customers through one of the most popular purchase methods, a payment process supplies some additional benefits to your business:
- Consistent Transaction Processing: No matter how many channels you accept money transfers through, having consistent transactions and detailed reporting from a single digital solution organizes your business operations. Lower your DSO (Days Sales Outstanding—the length you have to wait till payment for a purchase is made), drastically saving time and cutting costs associated with delayed payment options. A payment processor integrates with your merchant account, captures customer transfer details, requests money from the acquiring bank or card, and sends a merchant approval, all under a single second.
- Protect Sensitive Data: With digital innovation allowing cards, phones, and digital wallets to now make real-time payments, fraud and security threats have risen in kind. Payment processors use tokenization and encryption protocols to protect against such malicious activity, securing your customer’s data and verifying personal information. Secure transactions build client trust and brand engagement.
- Frictionless Customer Experiences: In order to increase sales conversion rates, it is in your best interest to reduce the number of barriers to purchase. With a payment processor, you expand your user reach through several different e-commerce payment options, giving each prospective client ease of use and simplicity when it comes to their final buying decision. Case in point: Buy-Now-Pay-Later options give a 45 – 80% uptick in new customer acquisition and a boost in shopping cart size by up to 200%.
- International Transactions: As an added bonus, many payment processors also include international payment gateways that streamline all global transactions. Accept purchases in a variety of currencies and even offer service in a client’s native language.
Criteria for Choosing the Right Payment Processor
Not all payment processors are the same, and they can provide different benefits that have a varied return on investment. Use the following selection criteria to ensure you purchase the right payment processor for you and your business.
- Compliance: When you accept digital payments, you must comply with Payment Card Industry (PCI) regulations. PCI DSS, PSD2, and SCA are common compliance directives—ensure that the processor you select meets these requirements, helping you avoid fees and increasing transaction security.
- Anti-fraud and data security: Fraud losses through payment cards reach 28.65 billion worldwide in 2019. To combat such activity, many payment processors integrate anti-fraud systems and data security measures to detect and prevent cybercrime. Make sure your selection includes modern security solutions that meet your customer and business demands.
- Reconciliation: It is standard business practice to compare or reconcile your merchant accounts to any incoming sales, helping prevent money losses between transfers. Select a payment processor with clear Settled Transactions Reports so that you can process deposits faster and keep your business accounting organized and simple to understand.
- Integrated Payments: You most likely have several technical solutions that streamline your business. Select a payment processor that can seamlessly integrate with your apps, such as your Customer Relationship Manager (CRM) or company-specific accounting software. With integrated payments, automate tasks between your applications, saving time and improving business efficiency.
- Costs and fees: There are expenses associated with a payment processor: customer bank charges, credit card fees, merchant account fees, and the processing fee from the processor itself. Ensure that there are no hidden or unexpected additional costs included with your selection. Pro tip: choose according to your budget and business needs; the cheapest or most expensive processor is not always the best option.
- Multiple payment options: The more payment options available, the larger your social reach and the better service you can offer. Choose a processor with several accepted payment formats, especially if you want to start accepting cryptocurrencies and other blockchain-based payment types.
- Fund liquidity: ACH transfers often occur in batches, while Direct Settlement (DS) occurs in real-time, but both require pre-funded or held liquidity. Inquire with the payment processor and your merchant bank about what type of liquid funds you need for optimal service, and purchase software that fits your business.
- Onboarding process: Look for payment processors that require simple sign-up processes, onboarding APIs, and online features for easy access to account information. Onboarding should be a simple affair for you, especially if you already have business software solutions in use (e.g. Point of Sale).
- Customer support: If you have an enterprise solution, a payment processor with extensive customer service can lead to an excellent return on investment over the long term. If you handle an immense amount of daily transactions, having accessible support teams can reduce downtimes, ensure consistent transactions, and remedy any initial startup issues.
- Ease of use: The faster your payment processor works, the less friction you create for buyers. Reduce shopping cart abandonment and improve the speed of business function with rapid payment processing. Beware of products that are too complex and present a bad user experience.
How Choosing the Right Payment Processor Impacts Your Business
While it might not seem readily apparent, the payment processor you select can affect the growth trajectory of your business.
For example, if you plan to move your sales strategy into an online-first e-commerce setting, a payment processor that accepts international transactions and digital wallets is crucial. With a completely online business, you will need reliable credit card payments as that might become your only method of securing a transaction. Anything less than that could limit your total sales and market share.
For others, their business might change once they plan to accept cryptocurrencies such as Bitcoin—it will expand their potential market but could put them into a high-risk merchant category.
It is often in your best interest to avoid high-risk merchant categories, as credit card companies may limit services if you create a degree of risk for them. High fraud rates, bad credit scores, and questionable business practices can also put you into a high-risk category. If your business qualifies as high-risk, select a payment processor willing to provide service (there are designated processors for high-risk ventures such as investment firms, airlines, and gambling halls).
If you fail to integrate a processor that fits within your long-term goals and can scale to the success of your business, it can in-turn hamper the growth of your company.
Potential Problems When You Select the Wrong Payment Processor
Selecting the wrong type of payment processor can hurt your business and create a negative return on investment in the following ways:
- Inability to process transactions: 20 – 40% of subscription cancellations are attributed to credit card declines. Not only does this deter customer sales, but it creates costly returns and lengthy chargeback claims. Avoid unreliable processors whenever possible.
- Damage to brand reputation: Repeat exposure to fraud and data breaches can destroy your company’s hard-earned reputation. Stolen credit information and personal account holds can ruin what once was a positive long-term client and creates a lot of negative advocacy from unhappy users.
- Increased fees/costs: The more negative activity that occurs on your account, the higher the fee rates will rise from your payment processor. Some shady processing operators even perform bait and switch strategies, hitting you with enormous fees six months down the road. Credit card associations, acquiring payments, and your payment processor may all change fee structures if incident, fraud, and chargeback claims spike.
Popular Payment Processors
There are numerous payment processors for you to choose from, but Square, Paypal, and Stripe are popular options for business owners.
- Square: With its attached stripe reader, contact pay, and chip readers (created through a smartphone app), Square is the best option for businesses that require travel or remote payment acceptance. Square also offers enterprise capabilities.
- Paypal: For low volume users who want a budget-friendly option with easy integrations and worldwide access, Paypal is the preferred software option.
- Stripe: Stripe is considered the best one-size-fits-all solution for businesses that want consistent payments across different devices and payment options. It is developer-friendly and offers good customization.
Where to Get More Information About How to Choose a Payment Processor
If you would like to learn more details about the potential payment processor options available for use, you can use the following resources:
- Payment Processor Websites
|Square – Square Payments
|Paypal – How Paypal Works
|Stripe – Payments
|Flagship – FAQ
|Chrono Pay – About
|Payline – Helpful Resources
|Adyen – Online Payments
|Bitpay – FAQ
|GoCardless – Resources
- Payment Publications
- Payment and Fintech Magazine
- Payment Systems: From the Salt Mines to the Board Room
- The World Of Digital Payments
- Payment Technologies for E-Commerce
- The PAYTECH Book: The Payment Technology Handbook for Investors, Entrepreneurs, and FinTech Visionaries
- Merchant Organizations