By 2018, your questions about online payment services should be focused on how to successfully integrate online payment processing in a way that’s future-proofed for your business and customer’s needs.
This comes down to knowing how and why to choose a specific online payment processor, how to check off all your online payment services needs, and how to accept payments online in today’s digital-first era. This will determine the impact your choices have on meeting the needs of your evolving business model.
Online payment services should make your life easier, not more complicated. Cash and checks are laden with fraud and make reconciling your sales more difficult. Credit cards aren’t without their own concerns, but they are the expected payment method for most of your customers. With seemingly endless options in the e-commerce marketplace, understanding how to accept credit cards online, and how to integrate more dynamic payments means learning the ins and outs of how to select a payment processor, how it impacts your customers, and how the benefits your business can expect to see thanks to the evolution of online payment services.
To guide your business through the complexities of what’s involved in choosing a payment processor to run your online payment services, we’ve put together a comprehensive how-to guide as a handy reference for a decision that has a direct correlation to your bottom line.
Tip: use the Table of Contents below to navigate the ins and outs of online payment processing to fit your business’s growing needs.
Table of Contents
What Are Online Payment Services? | What You Need to Know | How to Choose a Payment Processor
Choosing the Right Pricing | Why Online Payments Are Important | How to Benefit Customers | How to Choose the Right Partner
What Are Online Payment Services?
This question may seem intuitive, but truly understanding the nuances of what makes an e-commerce payment processor work requires a little digging. But first, let’s get some context around the momentum of the online payment services industry.
Research from Forrester indicates that by 2020, online business transactions are set to reach a whopping $523 billion. That’s a $200 billion surge in just five years. As more and more customers ditch checks and cash, the influx of digital payments will continue to capture a larger portion of online business payments. Whether you’re a business dealing in the B2B or B2C world, positioning your e-commerce channels to mesh with customer demands is the first step in setting yourself apart in the crowded market.
Think of online payment processing services as the heartbeat behind the entire e-commerce experience. You can have the best user experience, a flashy homepage, and solid product pages, but without considering where payments fit into the overall customer experience, your customer acquisition strategy will fall flat. As the heart of the transaction, online payments services allows your other e-commerce platform tools to function in a speedy and seamless manner. Simplifying and securing your online payment processing can only be done by working with an online payment service provider that understands what’s needed to make your e-commerce business fully function.
Here’s the skinny on how online payment services actually work. Once a consumer selects how they want to pay online, they then type in the necessary information to submit their payment. From there, the card-issuing bank then gives approval for the transaction. Through this process, which typically is done within seconds, technology innovations across the payments ecosystem have enabled businesses to offer online payment methods to their customers in a safe and convenient way.
Unlike old-fashioned payment methods that rely on manual reconciliation, online payments are integrated into your e-commerce channels and those payments are automatically processed into your accounts. This helps your business protect your payments (no data is stored on your systems), and necessary software updates become automatic tasks that your business no longer has to worry about. Staying up-to-date with online payment services is easier than ever thanks to innovative technology that’s taken the guesswork out of onboarding processes.
What You Need To Know about Online Payment Services
There are four basic steps when establishing your online payment services: Establishing credit card network agreements, choosing a merchant account provider, account setup and accepting credit/debit card payments. This might sound time-consuming and complex, but once you break down the basics of the online payment equation, it becomes clear just how simple accepting payments online can (and should) be.
After determining what credit card payment networks are best for your business (based on the terms and fees that mesh best with the amount of transaction volume your business processes), you should compare online payment services and processor options.
You probably know that an online payment service provides the tools necessary for you to accept credit cards online. What you may not know is what functionality is needed within those services to actually make those tasks occur smoothly.
Those tools include everything from a payment processor that makes the payment possible to the payment gateway that allows the transaction data to securely travel between the customer and the processor. Once the necessary data is sent to the credit card network — and into the customer’s issuing bank — a payment can be completed. That payment is what allows your online payments to flow into your business bank account.
The Four Core Components of Online Payment Processing
Before you consider why online payment services matter, and how they fit into your business model, you’ll want to be aware of the technical aspects that make the transaction possible. For your reference, this includes the following components.
- Merchant Account: A merchant account is necessary for any business who wants to accept credit cards online and must be done before you can get your online payment processing up and running. When choosing a merchant account partner you must consider the following: transparency in pricing, customer service, merchant account support, enhanced technology, and flexibility to choose a plan that matches your online payment processing needs.
- Payment Gateway: This is the core e-commerce application that connects your merchant account to your payment processing to allow your business to accept and process credit card payments online. A payment gateway securely authorizes credit card payments — acting as the bridge between the merchant and the payment processor that authorizes the transaction from the card issuer, payment network, or a customer’s bank. Features of a payment gateway include: the ability to encrypt customer payment data, authorize transactions and properly transmit data across your payments systems.
- Payment Provider: This is also known as the payment service provider. For online payments, this refers to the company that provides that payment gateway and/or payment processing for your business. In many cases, you’ll find a comprehensive solution that can provide you with payment gateway and processing services. This can save your integration team time and resources by streamlining the onboarding process.
- Payment Processor: The payment processor is the company that a merchant selects to handle its transactions across its various channels. Whether online or in-store, a payment processor is responsible for communication with issuing banks to confirm a transaction can be completed. The processor relies on the cardholder’s issuing bank to either approve or decline a purchase. The payment processor serves as the buffer between a business and a financial institution to make sure payments are transferred into your account properly and in a timely fashion.
How to Choose the Right Online Payment Processor
Business owners are busy running day-to-day operations and trying to achieve solid profit margins. Worrying about which hardware and software options to power payment processing often falls last on the list. Most business owners simply want a system that works well, fast, and protects sensitive data. They worry less about the logistics of how their online payment processor works and more about how it impacts their business and their customers.
For businesses to ensure they are protected, they must understand the risks that exist within payments and how money travels across channels. Here’s a brief explanation about how online payment processors work.
A payment processor is far more than just a tool to manage transactions. You should think of online payment services and payment processing as an extension of your brand value. Collectively, they are part of the online shopping experience — just as must as the UX itself. Creating a smooth payment processing path is all about considering where it fits into the customer journey. From checkout to payment methods, these decisions can make or break your ability to offer seamless online payment services to your customers.
All businesses should look for a customer-centric payments enablement partner to help them deliver the right software and services to create a dynamic customer experience. Without the right online payment solutions, it’s difficult to fully achieve what all customers want most when shopping and paying online: a better, faster, more secure payment process. Increasingly, customers expect the payment experience to be as seamless online as it is in store. The only way to deliver a top-notch customer experience and take control of your brand’s value is to team up with the right payments enabler that thinks of payments as a way to re-define your brand’s customer experience.
Choosing the Right Pricing Options for Your Online Payment Services
Businesses don’t have to fit into a one-size fits all online payment service experience when it comes to selecting a plan. You should strive to work with an online payment processing partner that eliminates confusion and complexity by offering products and pricing that are tailored to fit the unique needs of your business. It’s important to consider how often and how many transactions you process in a month to determine which pricing structure is right for your business. This helps you avoid hidden costs, such as upfront fees and excessive charges for online payments software and hardware.
Traditionally, for online payment services, there are two different types of pricing structures. Within those two structures, a payment processing provider may offer a variety of plans that can be customized to fit your business’ transacting needs. The two pricing structures that are used most are tiered and interchange-plus.
- Tiered pricing: This pricing structure is where several hundred different processing rates are packaged into tiers that represent three different possible rates (qualified, mid-qualified, non-qualified). This pricing model is the least preferred method for most businesses since it’s difficult to know exactly how much their provider is making on each transaction.
- Interchange-Plus Pricing: This is the most transparent pricing model since it puts power back in the hands of the business owner. Interchange refers to the rates that come directly from the card networks (companies like Visa, Mastercard, and American Express to name a few). These fees are split between the networks and the credit card issuing banks. Processing companies, nor merchants, can control these rates. Every business accepting credit cards pays interchange fees, which varies based on the type of card your customer is using. The “plus” in these instance refers to the fee a payment processing partner charges for their role in the transaction.
Why Online Payment Services are Important For Your Business
The latest data from Forrester indicates that Commerce is growing by 23% year-over-year, yet 46% of American small businesses do not have a website from which they can accept credit cards online. This gap is causing many businesses to miss out on vast untapped revenue opportunities.
Online payment services allow your business to integrate e-commerce payments into your site through a number of diverse online shopping cart solution. For accepting credit, debit and electronic payments online, these services are critical in integrating additional apps using a gateway API. Online payment services enable flexible integration solutions that help businesses customize how they want to accept payments across their various devices.
Whether it’s accepting online payments via a mobile app, website, or at a virtual terminal that allows you to accept payments by phone or mail, an online payment services provider provides the connections necessary to cater to your customers’ needs. Being able to accept transactions through a variety of methods can help your business cast a wider customer net.
Online payment services allow you to integrate a payment gateway with built-in security and fraud protection that can integrate other necessary features, such as payroll, accounting, and business financials. Not only can online payment services help you enhance your customer service, but you can upgrade your internal billing systems so your finances are in sync with each other. That’s a win-win for every party.
Online payment services also give your business one distinct asset: rich, customer data. Transaction data can help businesses learn demographic, geographic, psychographic, and economic attributes to better connect their services and products to the needs of their customers. These are incredibly resourceful tools that can help you understand how to market to your core customer base better in order to drive sales.
Data linked to your online payment processor gives insight into who your customers are and where they are from, along with metrics on which products sell best – to where, to what frequency, and to whom. Having these important insights equips your business with actionable data and a better vision into how to grow revenue.
How Online Payment Services Benefit Your Customers
There are plenty of benefits to providing your customer base with a variety of choices through the right payment processing partner.
Let’s start with the security benefits. While minimizing your online payment processing risk is important for your business, it’s also important for your customers.
You customer’s personal data is one of the most important assets to protect. Security breaches have become all too common today, and once a consumer gets caught in a breach related to a specific business, they are less likely to want to continue doing business with that merchant. Protecting credit and debit card information that is transmitted across your payment systems means relying on payment processors that have the proper security credentials (such as PCI compliance standards).
The right online payment services also come equipped with a processor that can tokenize customer credit card data so it remains safeguarded from outside threats. The right payment processing service will also be able to properly authenticate cards and their identities, while still being able to initiate transaction remotely without the need to directly access cardholder information. Relying on a payment partner to protect your cardholder’s information is a key component of delivering comprehensive customer service. Trust is a key component of the business-customer relationship and at the heart of that is secure online payment methods.
You may think online payment services make you more susceptible to threats, but that’s not the reality for businesses that invest in payment partners that are focused on delivering industry-leading security standards. Modern online payment services are equipped with tools that securely transmit data in a way that keeps businesses from seeing, touching, handling, transmitting and even storing their customers’ payment information. That’s peace of mind that you should care about.
How to Select the Right Payment Processing Partner for Your Business Model
Choosing the right online payment service comes down to three basic questions.
- Does the Payment Processor Allow for Flexible Payments API Integration?
- Does the Payment Processor Enable Easy, Instant Onboarding?
- Does the Payment Processor Mitigate Risk and Protect Your Business?
Any business that processes payments shares a common goal: the ability to consistently and easily upgrade their payment processing with the latest software and technologies. A lack of consideration for these features puts your business at risk for disrupting the flow of business.
The right payment processor is also built with your current and future needs in mind. From a developer standpoint, flexibility is key to being able to instantly onboard merchant accounts and quickly facilitate payments when upgrading your payment processing software. Choosing a payments processor that allows for the integration of a flexible payment gateway API allows you to adapt to the ongoing needs of your business — and your customers. This option also enables quicker integration with minimal disruption to your business.
Upgrading or implementing a new payment processor can seem daunting. But given the right tools and software solutions, your business can be well equipped to offer secure, instant onboarding. Having the right payment processor and processing software can make or break your ability to drive more revenue, increase your productivity, and build customer relationships (instead of wasting time with clunky processor integrations).
Next, you must consider the setup and onboarding process. A business’ ability to protect customers also comes down to the ability to continually upgrade their own systems. That’s where flexible integration of new software/technology comes back into the mix. The payments industry itself is evolving, but so are the techniques and tools of hackers looking to infiltrate your systems. When evaluating your online payment services needs, businesses must choose solutions that have a multitude of features that are customizable for your business’ needs. Setup should also allow your business to get up and running in a way that doesn’t cause delays with your customers. If you think adding a new payment processing system will clog up your workflow then you’re not working with the right partner.
Finally, as mentioned above, you must always think about the systems and software you rely on to secure your payments, including how they settle funds, minimize risk, and protect your profits. Flexible solutions give your business the ability to adopt new technologies as they enter the market, providing you with better control over your payments.
While flexible integration and instant onboarding of your payment processor are selling points on picking a partner, making sure your solution considers that third element (mitigating risk) makes all the difference when it comes to the other three factors your business cares about most: user acquisition, retention, and satisfaction.
Equipped with all of this knowledge, your team can be ready to make an educated decision on how to add online payment services into your business model without disrupting your current customer relationships. No matter how you choose to process payments, you must always keep who you process payments in mind. That provider is the bridge between you, your customers and your profits. Choosing the right service to work with is what creates that fast and seamless payments experience for your business and your customers.
Anna Kragie is a content contributor for Payline Data. She previously wrote for PYMNTS.com, as a Sr. Content Producer, where she focused on financial services and payments innovation, fraud and security, emerging payments, and FinTech news, research and thought-leadership content across the payments industry.