High-quality and efficient payment processing is one of the main conditions for systematic business growth. Therefore, you want to offer your customers a secure, fast and easy-to-use payment system that at the same time meets the needs of your business: supports various payment methods, is compatible with your platform, is protected from fraud, and so on.
Today there are many payment systems and in this variety of choices it is easy to get confused, spend money and time on something that will bring you more trouble and losses than benefits. Thus, it is so important for the merchant to understand the types of payment systems, know how payment processing works and how to choose a payment processor suitable for them and how to start accepting payments.
In this article, we will help you to understand the existing payment acceptance methods, their advantages and disadvantages, as well as what businesses should consider when choosing.
Merchant account
Primarily, in order to accept non-cash payments, a merchant must have access to a payment processor coordinating transactions. Hence, every business owner needs a merchant bank (acquiring bank) that accepts payments on their behalf and deposits them into a merchant account they provide. A merchant account is the actual account that is set up by the chosen merchant processor (merchant services provider) and allows to receive funds from payment card transactions.
Non-cash payments can be accepted offline and online
Online payments include
- Credit card payments
For a lot of people, this is still the preferred payment method, despite the serious disadvantages, such as a fairly large commission for each transaction, weak security and confidentiality of data of both the client and the merchant, and the possibility of fraud.
- Mobile payments
Mobile wallets like Apple Pay, Google Pay and Samsung Pay offer immediate contactless payment. Pros are that customer’s credit card information is entered automatically and most popular e-commerce platforms support mobile payments. In turn, cons are for the implementation of mobile payments on the site, the merchant must follow the developer’s recommendations for creating each of them separately.
- ACH (Automated Clearing House) transfers
ACH is a network that transfers money between bank accounts in the US. For business this system is as simple as possible: they provide customer with their bank’s routing number and bank account number, and then everything is up to the customer who must have access to the necessary accounts and tools, including an ACH payment service provider like Gusto, Bill.com or Stax. Besides, it is also the client who covers the fees for a transition. Such a system is unprofitable and inconvenient for the client, so is for business.
- Email invoicing
Email invoicing software allows the merchant to email their customers an invoice with a link to one of chosen payment platforms. Invoicing platforms like Zoho, Xero, QuickBooks, Wave offer integrations with major payment service providers. So, that way mostly works for B2B businesses and freelancers.
Online payment service providers
At the moment, online payment service providers are considered the most convenient and common way for businesses to receive payments. Providers allow the merchant to receive payments directly from the customer’s account to theirs. Online payment service providers include two technologies that enable merchant and customer to transact: the payment gateway and the payment processor. Let’s talk about each of the methods in more detail.
Payment gateway
A payment gateway is a software that acts as an intermediary between the customer and merchant that enables online communication between the issuing bank and the acquiring bank. So, it encrypts confidential card data, transmits the customer’s credit card information to the payment processor, guarantees the availability of funds in the customer’s bank and allows the merchant to receive the payment.
Pros of gateways:
- authentication of customer’s credentials before forwarding the transaction
- different payment options
- multi-currency and multi-jurisdictional settlements via a single interface
- reporting on payments
- analytical data on transactions
- fraud prevention
Cons of gateways:
- for each country different payment gateways that merchant needs to set up personally
- commission for each transaction
- no solutions for recurring payments
- there is no automatic accounting of promo codes and discounts
- difficulties during registration and frequent rejection of applications during thorough verification before connection
How to choose a payment gateway
When choosing a payment gateway, it is necessary to take into account the specifics of the business and customers, because the currencies of accepted payments, the transaction fee and rate depend on it, so it is important to take into account a number of factors:
- ensure that your type of service or product is allowed by the payment gateway
- study the parameters of the merchant account and the conditions of its interaction with the payment gateway
- study the enabled payment methods of the payment gateway and make sure that it supports the necessary payment methods and credit cards, has multi-currency support
- check transaction limits and their correlation with the cost of your goods and services
- consider cost-effectiveness, study the pricing for payment gateway services and fees for using third-party tools to process and authorize transactions.
- check out the security features
Payment processor
A payment processor is a company that acts as a middleman and processes online and offline transactions in the background.
The payment processor connects to both the merchant account and the payment gateway, quickly transmitting information. Payment processors usually have their own networks, which simplifies the transaction process, and the functions of the payment processor are wider than those of the payment gateway.
So, the processor authenticates payment information, moves the transaction through the processing network, sends a billing statement, disburses funds to the merchant and so forth.
The advantages that a payment processor has include the advantages of a payment gateway, adding a few more points:
- higher level of transaction security at all its stages, data protection laws compliance
- ability to work with multiple payment gateways at the same time
- individual customization of the platform for each merchant, a variety of built-in integrations
- ability to automatically collect payments, create invoices
- setting up several tariff plans and add-ons at the same time
- automatic accounting of promotions, discounts and promo codes when paying by the client
- revenue optimization tools
- technical changes that correspond to changes in the legal and financial rules of online payments, which ensures that the business meets security requirements
- availability of round-the-clock support service
How to choose a payment processor
When choosing a payment platform, every merchant should take into account the needs and specifics of both their business and their customers. Here are some tips to pay attention to when choosing:
- business type – often payment providers specialize in working with a certain category of business and that’s beneficial for the business to find a suitable processor
- restrictions on goods and services – it’s important to ensure that the business doesn’t belong to the high-risk merchant category for the chosen payment processor, so check the restrictions on services and goods
- pricing and fees – the merchant must know every item for which the payment system charges a commission, as well as be sure of the transparency of the system for audit. For example, a percentage-based or tiered pricing cooperation will be more profitable for a start-up business
- payment method and currencies – the payment processor must support the type of payments that is convenient for customers, which has a beneficial effect on the level of sales
- global billing – if a business sells services and goods worldwide or plans to do it one day, it is necessary to consider the capabilities of the payment processor to support regional payment options and all major currencies with automated systems that handle conversion rates
- frequency of payouts – cash flow fluctuations are an obstacle to business development, so the merchant also needs to take into account the work of banks on both sides, how often and what kind of payment system the payment process uses
- additional features – every payment processor offers a number of features in addition to the transactions themselves, which businesses should choose according to their needs
The payment processor is an intermediary and a key element in the process of transmitting information from the payment gateway to all financial institutions confirming the transaction.
We can help
The convenience of customers and the speed of accepting payments are now among the factors of business competitiveness.
Rainex is the latest modern payment processor. This is a billing and subscription management platform with which you can perform many operations, including creating rates and subscriptions, sending invoices and notifications to customers, setting up payment acceptance in several currencies at the same time, connecting to several payment gateways and much more.
Find out how Rainex can help you accept payments and make time-consuming workflows a piece of cake.
To learn more, sign up for a product demonstration. We will be happy to tell you about us and answer any questions.
