Introduction to Online Payment Processing
Implementing online payment processing is an essential step to securing business prosperity and longevity.
According to an American Express Digital Payment Survey, 71% of merchants said their annual online and mobile sales are consistently increasing. Therefore, it is crucial that companies maximize sales and profits by utilizing online transaction services while addressing consumer payment security concerns.
A beneficial online processing service should securely perform card processing to prevent payment theft and promote product sales.
6 Steps of Online Payment Processing
Although virtual payment processing takes place in a matter of seconds, it goes through extensive authorization and settlement steps. Starting from when a buyer places an order for the items in their shopping cart, the online payment system follows the primary steps to fulfill the transaction.
These steps include-
1. A customer buys an item or service using their credit or debit card.
2. The online payment is filtered through a payment gateway that encrypts data entering the processing service.
3. The payment processor contacts the buyer's bank or credit card company to ensure they have enough funds to purchase their products.
4. The institution accepts or denies the request.
5. The payment processing service alerts the consumer of the order confirmation or denial and, if approved, has the bank credit their account.
6. The funds are transferred into the business's merchant bank account.
This payment service allows customers to make one-time purchases or set up recurring payments quickly. It also streamlines card transactions so the order can be placed and confirmed at any time.
Benefits of Online Payment Services
By providing different online payment options, businesses and customers can both reap the benefits.
Studies show that 9 out of 10 shoppers make at least one online purchase a year and spend up to 18% more when using their credit cards instead of cash. Therefore, companies with an online store that utilizes credit card processing can increase their sales and profits.
The number of transaction methods accepted directly affects a business's sales and revenue. Virtual terminals allow businesses to integrate their e-commerce websites and mobile applications so they can accept payments online, by phone, and even by mail. On the other hand, organizations that do not process diverse payment options miss out on potential customers and sales.
Online payment solutions can also be integrated with security and anti-fraud software into established POS systems to protect employee payroll, accounting, and financial data. This also secures funds entering and leaving the company's account.
Payment service providers linked with a POS system give management insight on where transactions are made, customer demographic, and product sales trends. This insight helps organizations determine a plan of action to increase revenue and customer loyalty.
A Pew Research Center survey revealed only 1 out of 10 Americans are confident that e-commerce sites can keep their card information secure. Businesses can minimize the threat of fraud and security breaches for buyers by using protected online payment gateways.
Advanced payment processors with credentials, such as Payment Card Industry Data Security Standard, also known as PCI DSS compliance, ensure safeguarded transactions. PCI DSS is a regulation of security standards that determine whether a payment solution can adequately protect transaction data.
These services not only guard account data but also verify cardholders with anti-theft customer identity technology to validate safe purchases. By going above and beyond the basic consumer needs, trust is built between a business and its customers, promoting reciprocated loyalty.
According to a Cardtronics Health of Cash report, 9 out of 10 people like having the option to use any form of payment when purchasing a product. Therefore, implementing an online processing service that accepts several payment types can attract and satisfy more customers.
Who Is Involved in Online Payments?
Regardless if a purchase is made online, over the phone, or in person, processing a credit card payment involves three entities. These key players include-
1. The Merchant Account or Business
In order to accept credit card payments, companies need a merchant account where transaction funds are deposited. Many businesses also use a merchant bank, or acquirer, that verifies and accepts deposits on their behalf. Organizations choosing a merchant account should look at their price transparency, plan flexibility, and customer support.
2. The Customer
The buyer also needs an active bank account or credit institution that allows them to withdraw funds to make a transaction. The entity that approves or denies the customer's purchase, depending on available credit, is known as the issuing bank.
3. The Technology
The vehicle that transports the funds to and from the other players includes two systems. An account payment gateway is a software that simply connects a company's e-commerce shopping cart to the payment processor. By authorizing and encrypting the buyer's information, the gateway securely passes the data to the processing service.
The processor, or merchant service, then handles all of the transfers and paperwork. This network sends statements, verifies funds with the bank, and finalizes the transaction. Oftentimes, a business's merchant bank acts as their processor, promoting purchase efficiency.
Processing Payment Options
There are many types of online payment service plans that fit the transaction requirements and budgets of any business.
According to the US Census Bureau's 2017 report, online payments increased by 64% from 2013 to 2017. A modern payment solution should perform all of the heavy lifting during a purchase, minimizing confusion and stress for the merchant. Before choosing a payment plan, a company should understand their transaction levels and how it would affect different pricing strategies. Understanding these elements helps merchants avoid hidden costs and reduce processing fees.
There are typically two pricing structures that are used by online payment services. These models are further broken down into plans by the merchant service and vary depending on the provider. The standard pricing structures include-
This pricing model bundles hundreds of processing plans into three categories- qualified, mid-qualified, non-qualified. These three tiers are made up of approximately 300 interchange fees. Interchange rates are set by the card networks to cover the cost of handling and risk management involved in transferring funds.
While the tiers may make it seem comprehensive, this structure lacks transparency as the provider can define the categories in any way they please. This makes it harder for businesses to avoid hidden fees and understand how much capital the processing company is skimming.
As a more transparent model, interchange-plus pricing splits all fees between the issuing banks and card networks. As processing companies are not allowed to alter these expenses, the business can track where expenses are applied. Interchange fees vary across services as they depend solely on the card network, such as Visa and Mastercard. While the plus fees refer to any other partnered payment processor included in the transaction procedure.
This strategy places a fixed percent on all transactions, regardless of volume or total cost. This single rate includes all fees from-
- Issuing banks
- Card networks
- Merchant bank
- Payment processor (if separate from the merchant bank)
How to Accept Online Payments
Businesses should choose services that make accepting online payments stress-free and straightforward. Advanced systems handle transactions and provide safety measures for the business's and customer's peace of mind.
Commonly used payment processors include-
Merchant Account Plus Payment Gateway
Some online payment solutions combine a merchant account and payment gateways from different services. While a merchant account accepts credit cards, the gateway connects a business's account to their e-commerce website. From here, the payment transaction is transmitted between the consumer's and the company's accounts. This process is performed much like a traditional point-of-sale (POS) card machine, only virtually.
Since separate providers are required for the merchant account and gateway, businesses are responsible for submitting forms to both services. These forms require disclosing financial data and can take several days to process. Therefore, organizations looking to implement this processing method must wait until applications are approved, and all systems are connected.
Companies usually experience excellent customer support, as these providers work with large industries requiring them to be equipped with extensive care teams. They also allow businesses to have some control over security measures and gateway personalization.
Other services are all-in-one solutions that provide both the merchant account and gateway. This makes application acceptance quicker and allows businesses to better manage their correspondence. All-in-one solutions also accept all major credit cards at affordable rates by eliminating monthly fees. However, advanced features usually need to be purchased at additional subscription rates.
Systems unique to a business can seamlessly integrate a processing service to their e-commerce websites. While PayPal has over 100 million users, combining their services with processors that provide other payment options can increase shopper traffic and sales.
Small Business Virtual POS Systems
Similar to payment gateways, virtual POS systems allow businesses to process online transactions. A virtual terminal is an accessory that supports transaction efficiency by allowing company employees to make purchases online using a consumer's credit or debit card. This gives staff the flexibility of being able to conduct transactions when they are away from the stationary POS terminal.
Unlike payment gateways, virtual POS processors require an employee to manually input card information rather than the customer. While this may seem like a hassle for staff, it allows transactions to be carried out over the phone or by mail. Without a virtual terminal, companies would have to deny order requests such as these and miss out on sales and revenue.
Virtual POS solutions are excellent for mobile vendors that do not want to buy and travel with a card machine, but still want to be able to accept card payments. With just a portable device, such as a tablet or cell phone, users can input card data to complete purchases. While an internet connection is essential for processing services to fulfill the transaction, if no network is available, the user can take down client information to insert into the software later.
Many payment gateways can integrate with virtual POS systems so businesses can consolidate providers and limit fees to stay within their budget. This option can also act as a back-up plan if the traditional POS hardware encounters technical issues. Rather than lose out on sales, businesses can seamlessly continue operations with the virtual terminal.
Benefits & Features of Small Business Virtual POS Systems
Virtual terminals have the capabilities to grow with business expansion at a low cost and provide several benefits, such as-
- Real-time payments
- Retaining customer information to expedite future check-outs
- Recurring billing
- Faster payment
- POS system back-up
- Reporting and analytics
- Automatic software updates
- Improved marketing strategies
Advanced virtual POS solutions should optimize operations by providing features such as-
- Integration - Integration with all established management software provides users with a complete database, rather than having to switch between services.
- Reports - Detailed reports give managers insight on loyal customers, average sales, and popular products.
- Mobile Applications - Freelancers and mobile workers should be able to access data from anywhere to ensure operations are performed accurately.
- Recurring Payments - Businesses that profit from subscriptions need to be able to set up recurring billing for clients securely.
Utilizing software that performs safe transactions ensures that businesses provide the best customer service while optimizing their sales. By promoting an online business, organizations can maximize their revenue and expand their clientele to e-commerce shoppers.