Finally, an easy-to-understand guide to payment processing. We’ll be taking a look at what payment processing is, how it works, and best practices. Why is this crucial information for businesses?
For one, nearly all organizations need a convenient way to accept payments. The people you serve expect convenience and flexibility when doing business with you. Just as important, is understanding costs of payment processing since that affects your business profits.
Then you have to consider reliability because what brand wants to worry about payments not going through as promised?
3 Key Takeaways
#1 Payments can be processed in person, online, and completed with or without credit/debit cards.
#2 Vital payment processing features include ease-of-use, fraud prevention, modern equipment, and reliable customer support.
#3 Hidden and increasing processing fees are a serious problem for business owners.
Easy Overview of Payment Processing
Multiple steps are involved between a customer using their card and your business receiving the funds electronically. Those steps happen in microseconds, requiring no extra work on your part. Hooray’s the word you’re looking for!
Here’s the simplest breakdown:
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- Customer initiates payment with card or other payment option
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- Business terminal or card swiper begins processing payment
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- Data is securely relayed between both parties’ banks
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- Transaction is either approved or denied
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- Funds moved to business’s bank account
Just so you understand the details…
Payment gateways connect various financial systems needed for these transactions. Gateways make payments possible and secure. Most POS (point-of-sale) systems include a payment gateway. A trusted payment processing company can provide the gateway for your business.
Merchant accounts are similar to business bank accounts, however, they are used only for holding funds initiated via credit or debit cards. After a waiting period (24 to 72 hours), those funds are transferred to a business’s bank account.
Payment processing companies are in the business of facilitating transactions. Simply put, they make payments happen. How do these companies earn money? By charging businesses a monthly subscription, flat fee per transaction, or interchange-plus fees.
The more experienced and reliable the payment processor, the less you have to think or worry about the details of transactions.
Basic Types of Payment Processing Available
Luckily, flexible payment options for your organization are more plentiful than ever. Let’s take a gander…
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- Debit cards and credit cards. The most widely used in-person payments as seen at gas pumps, grocery checkouts, retail stores, etc. Cards are also widely used over the phone and for online purchases.
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- Digital wallets or apps. These gain popularity constantly as smartphone ubiquity in everyday life rises. Modern point-of-sale terminals offer the convenience of many digital payment apps such as Apple Pay or Google Pay.
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- Bank transfers. Usually business-to-business funds transfers but consumers can also utilize these digital transactions.
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- Electronic checks and ACH. A huge money-saver for businesses when combined with ACH’s (automated clearing house) lower fees. Often used for payroll, over-the-phone donations, rent, and even pension payments.
A big advantage in the payment processing world? Having as many payment options for your customers as possible.
Saves you and them time, money, and hassles!
*Stick around for frequently asked questions about processing payments at the end of this article.
Need a Deeper Dive into Various Ways to Accept Payments?
No worries. Payment options are expanding at an incredible rate. Which is great news for businesses large and small.
Below are 7 specific options for accepting payments:
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- Recurring subscriptions
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- Mobile card swiping
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- Product pages
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- Email invoices
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- QR codes
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- Virtual terminals
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- SMS payment links
Keep reading to avoid payment pitfalls…
Payment Processing Best Practices
Yes, payment processing should be a seamless part of your business when you have the right processor handling transactions. Still, there are best practices to follow.
Payment Security. You want to protect your business from fraud and chargebacks. Don’t forget your customers though. Shielding their private data is a major concern now more than ever with constant news alerts about data breaches.
There are different levels of security. Example? Tapping or inserting chipped cards is more secure than swiping. In-person payments are seen as more trustworthy than payments processed over the phone.
As for PCI DSS— Payment Card Industry Data Security Standard…
This is basic security mandated by law. Regardless, it’s important to verify other businesses you partner with are compliant with basic regulations.
To go top-tier with security, SOC 2 Compliance is recommended and certified by the American Institute of Certified Public Accountants. This is max protection but only top payment processors have this designation.
National Processing is SOC 2 Compliant and has been protecting our customers from security threats since 2007. We are here 24/7 to answer questions you have about accepting payments→ contact us here.
How Payments Influence Customer Experience
For one, you want to ensure customers recognize your brand on digital invoices and receipts. You don’t want them contesting a charge from ‘Sweaters LLC,’ when your shop is named ‘Kathy’s Boutique,’ right?
Repeat business is also a major profit center for any business. Smooth transactions bring buyers back. Examples:
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- Easy tipping options for service businesses
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- Quick checkouts
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- Payment terminals with reliable online connection
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- Simple steps at online checkout
Even a Guest Checkout Can Enhance Customer Experience
Sure, you want customers to set up an online account so you can market to them but…
A study showed a retailer (rumored to be Best Buy) increased sales by roughly $300 million by adding a guest checkout option! It removed friction from the buying process.
For customers who do want to sign up for your emails or SMS list, be sure your payment processing system makes it easy. Either directly or via third-party marketing tool integrations (MailChimp, for example). Because online shopping cart abandonment is rampant.
Baymard reports a 70.19% abandoned cart rate. Sending cart abandonment campaigns to reel window shoppers back in is a must.
Payment Processing Wrap-up and FAQ
Now you have an overview of how merchant services work. Plus, we took you on a deeper dive on the mechanics behind transactions.
With that knowledge, you should be able to avoid payment problems while choosing the best options and processing company. Just remember to protect customer data with secure systems, compliance, and updated software/hardware.
Guard yourself against fraud threats, chargebacks, as well as hidden processing fees. They disrupt your business while shrinking your bank account.
FAQ— Payment Processing
What’s the top complaint from businesses concerning merchant services?
Hidden fees. Why? Payment processing is a super-competitive business, so some companies hide fees to get contracts signed before honest competitors can. This is a deceptive practice that causes distrust among business owners who have been burned. Read your merchant services contract thoroughly before signing or have a legal expert review it.
What to look for in a review of a payment processing company?
Transparency and helpful customer service. Look for key phrases like “my fees went up constantly” or “could not reach my representative.” You want an account rep who answers your calls every time. Not just when signing up and setting up payment equipment. Also, look for glowing reviews that mention the most helpful customer service employees by name.
How are payment processing fees calculated?
Interchange-plus pricing is the most transparent pricing and typically the least costly. As for monthly fees, they’re commonplace, as are flat rate per transaction plus a percentage of purchase. Fees can increase based on the perceived security of each transaction— card swipe is riskier than chip insert. Higher-risk businesses can pay more in fees or be turned down by some merchant services providers. Payment processing companies that base fees on the type of industry can often save owners money.
Is Venmo a payment processor?
No. Venmo allows peer-to-peer payments. It offers no POS systems though. Even Venmo For Business is linked to a Personal Venmo account. Venmo does not provide support for individual merchant’s POS systems (per Venmo.com) though some POS platforms offer Venmo payment options.
