What are payment processing solutions? Payment processing solutions help businesses accept different types of customer payments and transfer money between parties involved in a payment transaction. Some key things payment processing does include:
- Validating payment details like credit card numbers
- Getting approval for transactions from banks
- Moving funds to merchants after a sale
- Supporting various payment methods like cards, bank transfers, digital wallets
- Ensuring transactions are safe and secure
Whether you run an online store or a physical shop, payment processing solutions allow you to accept payments from customers worldwide easily. They work behind the scenes to connect all the parties and make transactions smooth and convenient for businesses and buyers. This guide will help you understand the different types of payment processing and how the process works and help you choose the best solution for your needs.
Types of Payment Processing
Several payment processing solutions allow businesses to accept different customer payment methods. Let’s take a closer look at some of the most popular ones:
Credit and Debit Card Processing
Processing card payments is one of the most common types of payment processing. It allows customers to pay with their credit or debit cards. Customers provide their card details during checkout, and the payment is authorized and funds deposited into the merchant’s account, usually within a couple of days.
Bank Transfers
Bank transfers allow customers to pay directly from their bank account. It could be through services like direct debit, where the business is authorized to take payments automatically on agreed dates. Bank transfers are generally cheaper to process than cards and are popular for recurring payments.
Digital Wallets
Digital wallets like PayPal have become very popular payment options. Customers can pay directly from their digital wallet account without entering long card details. Popular digital wallets also include Apple Pay, Google Pay, and Samsung Pay, which allow contactless payments from smartphones or smartwatches.
In-Person vs Online Payments
The type of payment processing solution needed depends on whether transactions happen in person or online. In-person payments are usually processed through a physical point-of-sale (POS) system that can accept chip and pin or contactless cards. For online payments, a merchant needs a virtual payment gateway that can securely take card or bank details online without a physical POS terminal.
Most payment processors now support both types of transactions through an integrated platform. It allows merchants to offer a consistent payment experience regardless of whether a customer pays in-store or on their website. The best payment providers offer additional features like recurring billing, subscriptions, and installment plans.
How Payment Processing Works Behind the Scenes
Now that we’ve covered the different types of payments that can be processed let’s take a look under the hood to understand the key steps involved in a typical payment processing transaction:
Authorization
When a customer wants to purchase, the payment details are sent to the merchant’s payment processor for verification. The processor then sends the parties to the issuing bank (where the customer’s account is held) for authorization. The bank checks the funds’ availability and responds with an approval or decline.
Settlement
After a transaction is authorized, settlement is where funds are deposited into the merchant’s bank account, usually within a couple of days. The payment processor facilitates moving money from the customer’s bank to the merchant’s bank minus any applicable processing fees.
Funding
Once a settlement is complete, the merchant’s bank account is funded with the payment amount. It is when businesses receive the money from transactions in their bank to use as working capital or pay bills.
Transaction Participants
Behind every payment are multiple parties working together seamlessly. As well as the merchant and customer, others include the merchant’s payment processor, the payment gateway, the acquiring bank, the issuing bank, and card networks like Visa or Mastercard that connect everything.
Security & Encryption
Payment processors use advanced security protocols like Secure Sockets Layer (SSL) to encrypt sensitive financial data during transmission. It helps protect information from theft or hacking. Processors also comply with standards like PCI DSS to secure all transaction systems.
With payment processing handling all the complexities, businesses can focus on selling products while knowing funds will reach them safely and on time after each sale. The process occurs in seconds but involves coordination between many different organizations.
Key Factors to Consider When Choosing a Payment Processor
With so many payment processing companies, deciding who is the best fit can seem overwhelming. Here are some important factors to weigh up when selecting a processor:
● Processing Fees: Most processors charge a percentage per transaction plus additional fees. Compare total costs for different card types and consider your average order value to estimate processing expenses. Some offer less expensive options for recurring payments.
● Payment Methods Accepted: Ensure the processor supports all important payment types for your business, including cards, e-wallets, bank transfers, B2B payments, etc. Consider your customers’ preferences.
● Integration & Tools: Ease of integration is critical, especially if you sell online. Look for seamlessly syncing processors with platforms like Shopify, WooCommerce, or QuickBooks. Valuable tools may include invoicing, subscriptions, fraud protection, etc.
● Customer Support: Will help be easily available when you need assistance? Before signing up, check support channels, response times, and online help resources.
● Compliance Certification: Look for a processor who is PCI DSS compliant to ensure transaction security standards are followed. They should keep up with changing regulations.
● Reputation & Reviews: Read independent reviews online to understand common customer experiences. Also, check if the company has been involved in public disputes or data breaches.
Top Choices to Consider
With the payment processing industry continually evolving, some providers have stayed ahead of the curve and grown to become market leaders. Here are overviews of five popular options to evaluate:
Stripe
Stripe is a great all-in-one solution for online businesses and mobile apps. They have simple pricing and strong fraud protection and accept over 100 payment methods worldwide. Developers love their extensive APIs; integration is a breeze on many platforms.
PayPal
As the original leader in digital payments, PayPal continues to innovate. Their large customer base offers high conversion rates. Features include PayPal Credit and convenient buyer protection. Best for small businesses and freelancers getting started.
Square
Square’s durable card readers plug straight into phones or tablets, making it portable. Pricing is transparent per swipe, and their Dashboard provides analytics. Ideal for in-person retailers and food trucks.
Adyen
Adyen powers payments for many large enterprises, with a single API to access over 250 payment methods globally. Their modern platform is fully customizable and includes valuable insights. Best for established eCommerce companies.
GoCardless
Specializing in recurring payments, GoCardless makes it effortless to take bank debit payments. Their global direct debit network supports over 30 currencies. A reliable option for SaaS, subscriptions, and invoices.
All five processors are leaders in their own right. Consider your business model and location to determine the best fit from a features and pricing perspective. Their free trials allow you to test processing live transactions before committing.
Exciting Changes on the Horizon
The payments industry is rapidly innovating to meet evolving customer demands and new technologies. Let’s explore some emerging trends reshaping how businesses accept payments:
● Open Banking: Open banking allows people to share their financial data with third parties securely. This opens opportunities for payment initiation directly from users’ bank accounts through online interfaces. Expect more bank transfers globally as regulations permit.
● Cryptocurrencies: While still maturing, cryptocurrencies like Bitcoin and Ethereum are gaining traction. Look for payment processors to increasingly support crypto as an acceptance option, though volatility remains a challenge. NFT sales also drive crypto payments.
● Real-Time Payments: The ability to send and receive funds instantly 24/7 is a reality through systems like Faster Payments and PayNow. Merchants can offer immediate fulfillment of digital goods and services after purchase.
● Mobile-First Checkout: Smartphone-driven interactions are the future. Payment providers are optimizing for smaller screens with one-tap payments using biometrics, loyalty integrations, and mobile orders. Expect improved in-app commerce, too.
● Alternative Payment Methods: Newer options like buy-now-pay-later, reward points redemption, and social payments will supplement traditional cards and bank payments. Processors add these based on customer demand in specific regions.
Businesses can future-proof their payment strategy and processes by focusing on emerging trends. Partnering with an agile processor makes adopting beneficial innovations seamless as the market shifts. Exciting times ahead!
Conclusion
Payment processing enables businesses of all sizes to accept various payment methods from customers worldwide. Options include credit/debit cards, bank transfers, digital wallets, and more. Authorization, settlement, and funding are the key steps in every transaction.
When selecting a payment processor, consider features, pricing, reputation, and integration needs. Stripe, PayPal, Square, and Adyen are the most popular processors merchants use globally. Emerging technologies are improving payments further, with trends like real-time payments and cryptocurrencies rising.
With so many possibilities, payment processing allows businesses to get paid how their customers prefer.
Frequently Asked Questions
What is the difference between a payment gateway and a payment processor?
A payment gateway transfers payment details to processors but doesn’t store or manage transactions. Processors integrate with gateways, securely process payments, handle settlements/refunds, and ensure compliance. Gateways are the conduit; processors manage the entire payment lifecycle.
Can I accept payments from other countries?
Most processors support cross-border payments! You can configure your account to accept currencies from other nations. Ensure your processor routes international transactions and considers any associated currency conversion fees.
How do I get paid from my payment processor?
After a sale, your processor settles funds into your bank account every two days. Payout schedules vary by provider, so confirm timelines upfront. You’ll also need to ensure your account details are accurate to receive your well-earned money smoothly.
What types of businesses need a payment processor?
Any business accepting customer payments, from sole proprietors to large enterprises, requires processing. Whether online, in-store, or mail/phone orders, processors handle all transaction types securely.
How do I choose between payment processing options?
Consider features, pricing, reputation, and integration with your sales channels. Free trials allow hands-on comparisons. Don’t hesitate to consult specialist advisers – they ensure you choose an optimal partner for your unique operation.
