With so many payment methods to choose from today, businesses have to make sure they accept payment options widely used by consumers. While cash payments are still acceptable, alternative modes of payment like cards, gift checks, and cryptocurrencies are also rising in popularity. If you have an eCommerce store, you probably understand how vital payment processors are in the user experience.
As an eCommerce owner, you must understand that choosing the right payment processing company is vital to the success of your business. Conversely, picking the wrong one could lead to a poor experience in your business, ultimately affecting your conversions.
If you’re in the market for the best payment processing solution for your eCommerce store, we’re here to help. This article will discuss payment processors, how they work, and the different payment processing solutions available.
What is a Payment Processing Solution?
A payment processor is a solution provided by several financial companies to help businesses facilitate non-cash payments from their customers. They do this by authenticating the customer’s payment information (credit, debit, or alternative payment options) and disbursing cash from their bank accounts to the merchant’s bank account.
In simple terms, a payment processing solution that allows your business to accept different payment options. It could be credit or debit card payments or other alternative payment options like electronic wallets (i.e., ApplePay, GooglePay, etc.). It handles all the behind-the-scenes activities after the consumers provide their payment information after a business transaction.
Before choosing the payment processing solution, you must consider your preferred payment modes. Most payment processing solutions can process payments made through debit or credit card, automated clearing house (ACH) payments, eChecks, digital and mobile wallets, or even cryptocurrencies.
How Do Payment Processing Solutions Work?
Before going into the details of how payment processing works, it is helpful to know who the key players are in the arrangement. The payment processing infrastructure involves several participants: the merchant, customer or consumer, customer’s bank, business’ bank, and payment processing company.
- Merchant – offer the goods or services to the consumer.
- Consumer/Customer – the individual consuming or paying for the goods and services the merchant provides.
- Customer’s bank – the credit or debit card provided by the customers.
- Merchant’s bank is a financial company that provides consumer accounts. It’s where the payment goes after the bank authenticates and approves the transaction.
- Payment processing company – the company that provides the software that facilitates the communication of financial information to process the payment from the consumers to merchants.
Payment processing is typically composed of five stages. Each stage is outlined below:
1. Customer pays the business
The first step in payment processing is customer payment. They pay through the counter or check their e-carts out (if shopping online), and they provide their card information to you (the merchant).
2. The information is encrypted into the system
Once the computer reads the credit card information you’ve provided, it automatically goes through a payment gateway. A payment gateway is software that uses the internet to communicate information between merchants, issuing banks, and credit card associations. It encrypts the data, keeping it private and protected from fraud.
The payment processor then sends a request to the credit card association or issuing bank, which checks if you have enough in your account to pay for the transaction. In other words, they decide whether the transaction gets approved or not. Thanks to technology, the entire authorization process can be as quick as a few seconds to minutes.
4. Funds are sent to the merchant’s account
The issuing bank’s approval or denial of the transaction is sent back to the credit card association, which notifies the merchant’s bank, then, lastly, the merchant. The card issuer or bank sends the funds to the merchant account if approved.
5. Merchant withdraws the funds
Once the bank sends the payment to the merchant’s account, the funds typically become available for use or withdrawal almost immediately, or sometimes in a few days.
What are the Fees Involved?
Of course, the payment processing companies, issuing banks, and credit card associations have to make money from the services they offer. So when it comes to payment processing, they usually charge a percentage of every transaction recorded.
In general, the fee you’ll have to shoulder as the merchant include:
1. Interchange rate
The primary purpose of the interchange rate is to cover the cost that the issuing bank or credit card issuer incurs as they take on the risk of approving the transaction and controlling fraudulent interactions that may occur.
The interchange fee may vary from one issuer to the next. The cost could also depend on the type of card you’re using, the issuing bank, the industry where the merchant operates, and the method at which the business accepts the payment (swiping, entering information on the computer, or online).
2. Assessment fee
The credit card association (Discover, MasterCard, VISA, etc.) also charges a fee for the service they offer, called an assessment fee. The assessment fee amount will depend on several factors, including the type of card used and transaction volume, and the industry you’re operating.
3. Authorization fee
The authorization fee refers to the percentage per transaction that the payment processing providers charge for every transaction the merchant makes – whether it’s a decline, sale, or return. In addition, the payment processing company, which could also be your merchant bank, may charge set-up, monthly maintenance, and account cancellation fees on top of the transaction fee they charge.
4. Merchant Bank Fees
Another percentage of the transaction goes to the merchant’s bank. The merchant bank’s amount will also depend on the transaction amount, the volume of transactions each month, and the industry in which the business operates.
It’s worth noting that even though some payment processing companies may charge more than others for their service, they may offer better benefits and lower upkeep costs to compensate for the high fees.
Top 5 Payment Processing Solutions to Try
Now that you have an overview of how payment processing works, you might be looking for the best providers out there. We’ve rounded up the best payment processing providers that you can consider for your business. Check out these five options:
PayPal is one of the most popular payment processing providers that businesses use today. The company has proven itself a solid choice for businesses looking for a low-volume payment processing solution as it operates in over 200 countries worldwide and supports around 26 currencies.
It also integrates well with eCommerce websites and is optimized for both desktop and mobile. This means that customers can choose to pay through PayPal anytime, anywhere, and the platform can facilitate the transaction and successfully transfer the payment to the merchant’s account. In addition, you can also set-up the recurring billing that allows you to send invoices to your customers regularly.
Another benefit of PayPal is its transparency when it comes to pricing. For example, it doesn’t require its users to sign a contract, and there is no specified lock-in period. PayPal also forgoes subscription and termination fees, so you won’t have to pay a dime anytime you decide to switch to other payment processing providers.
The feature that lets Stripe stand among other payment processing solutions allows you to craft a checkout for your eCommerce store. The developers designed the app so that business owners can tinker with the product’s APIs to best suit their needs. While there are no one-size-fits-all to payment processing solutions, Stripe comes close because of this feature.
With Stripe, eCommerce business owners can accept credit and debit card payments, cryptocurrencies, and other digital mobile wallets like ApplePay, Google Pay, and more. It also integrates with various eCommerce platforms, including Shopify, BigCommerce, and 3dcart.
Stripe does not require their clients to pay a monthly fee. Instead, they will charge the users (aka businesses) 2.9% + $0.30 for each transaction. In addition, the platform will also charge a 1% fee for international payments.
Due is your best bet if you’re looking for an all-in-one processing solution at an affordable price. The platform only charges 2.8% on any credit card transactions. In addition, it lets eCommerce businesses accept various payment methods, including ACH, credit cards, and Stripe and PayPal integrations.
Aside from processing payments, Due also offers time-tracking, project management, and invoicing features. Because of these, many freelancers, small business owners, and even large corporations choose the platform for payment processing and, at the same time, for its other features.
One thing that 2Checkouts offers its users is its top-notch payment gateway security. They’re PCI-compliant, so you can be assured that any of your customer’s payment information will be kept safe and protected. You can process debit cards, credit cards, and even PayPal payments from there.
Currently, the platform is available in 197 countries, operates in 15 languages, and supports over 87 currencies. This makes it a perfect payment processing solution if you constantly receive payments overseas.
With 2Checkout, you’ll only have to pay 2.9% + $0.30 per transaction. In addition, you won’t have to pay for set-up, recurring, or monthly fees, making it an affordable solution for many eCommerce businesses.
Ever thought of accepting customer payments using your phone? Look no further as Square is here to answer your call. Square is an innovative and versatile payment solution that lets businesses accept payments through its mobile card reader. This means that you can convert your phone as a point-of-sale (POS) with no additional charges.
The Square app lets business owners build and customize their own register. It also offers receipt issuing, sales report generation, inventory tracking, and timesheet management. Moreover, eCommerce stores also assure that all information provided on the platform will be kept private through its fraud protection feature.
As for the fees, Stripe does charge a flat 2.75% fee for every swipe using all major credit cards.
Payment processing solutions help businesses streamline the payment process. Businesses can accept various payment options – be it credit, debit, or other alternative forms of payments like electronic wallets. However, it will require a significant investment from your company, so you may have to tap into the different funding options like business lines of credit or invoice financing.
As you can see above, many payment processing solutions are available for your eCommerce businesses. However, when choosing the best one, be sure to assess your business first. What are your needs? What payment options will you offer? Remember, the right payment processing solution will improve your customer’s experience in your store, leading to more conversions and sales in the future.