18 Jul
Choosing a payment processor is one of the important decisions when launching an eCommerce business or migrating an existing business online. You have many payment processor options to pick from, making it difficult to identify which one best matches your needs and objectives. This article discusses 7 major payment processors so you can select the most suitable one for your business.
What is a payment processor?
Payment processors are companies that allow businesses to accept card, online, and mobile payments from customers. They handle the complex technology and compliance requirements involved in accepting and processing payments. Essentially, they act as the middleman between merchants and banks.
When a customer makes a payment to your business, the payment processor performs a series of actions behind the scenes. First, it verifies the customer’s card details with the card issuer (like Visa or Mastercard) to make sure the card is valid and there are enough funds available. Next, it routes the payment to your merchant bank account and deposits the funds. The processor also handles things like chargebacks, refunds, and transaction reports for your business.
So instead of dealing with complex payment systems, compliance regulations, and direct relationships with multiple banks, you can outsource all that to a payment processor. They handle all the technical aspects and you just receive the funds in your business bank account. This allows you to focus on your core business while still being able to accept card payments.
What does a payment processor do?
The major roles a payment processor plays are:
Authorizing card payments: When a customer makes a purchase using their debit or credit card, the payment processor verifies that the card details are legitimate and the account has sufficient funds or credit limit to cover the purchase amount. They communicate with the issuing bank to authorize the payment.
Processing the transactions: Once a payment is authorized, the payment processor submits the transaction details to the card issuing bank and coordinates the transfer of funds. This involves deducting the amount from the customer’s card account and depositing it into the merchant’s bank account.
Managing gateway connections: The payment processor acts as an intermediary between the merchant’s website/point of sale (POS) system and the card payment network. They provide an API or gateway for seamlessly integrating card payments into a merchant’s checkout flow.
Handling refunds: A payment processor also facilitates refunds. When a merchant needs to refund a customer’s payment, it processes the credit and deposits the amount back into the customer’s account.
Complying with security and compliance requirements: Payment processors must adhere to industry security standards and certification requirements like PCI DSS to protect sensitive cardholder data. They help merchants maintain compliance.
Providing reporting and analytics: Payment processors give merchants access to tools and reports to track sales, revenue, chargebacks, payment methods used, and other key metrics. This helps merchants optimize their business.
Mitigating risks: Payment processors absorb risks associated with fraud, chargeback, and transaction failures on behalf of merchants. They implement necessary fraud prevention tools and processes.
How do payment processors work?
Payment processors serve as intermediaries between merchants and the various payment networks. They connect merchants to credit and debit card systems, enabling customers to make payments with credit cards, debit cards, and other methods. Here’s how payment processors generally work:
When a customer wants to make a purchase, they provide their payment information to the merchant either by manually entering their card details or swiping their card.
The merchant then sends the customer’s payment information to their payment processor. The payment processor has direct connections to major card networks like Visa, Mastercard, American Express, and Discover.
The payment processor validates that the credit card information is legitimate and the card has enough funds or credit. They also check for any fraud indicators in the transaction.
If the payment is approved, the payment processor sends an authorization code to the merchant confirming the transaction was approved. The merchant then provides the product or service to the customer.
The merchant batches up all approved transactions from a time period and submits them to the payment processor. The payment processor then deposits the funds into the merchant’s bank account after debiting the customer’s credit card, minus any fees they charge.
Payment processors also offer services like reporting and analytics, fraud protection, chargeback handling, recurring billing, and subscription management. They simplify accepting payments and managing the payment process so merchants can focus on running their businesses.
The fees payment processors charge typically include an upfront percentage of the transaction amount, a flat per-transaction fee, and sometimes monthly account fees. They earn revenue by charging merchants a lower interchange rate than what they pay the card networks.
Key factors to consider when selecting a payment processor
There are several important factors to consider when choosing the right payment processing system for your business. Different businesses will have different priorities, but here are some of the main things you’ll want to evaluate:
Fees – Transaction fees, monthly or annual fees, chargeback fees, statements fees, etc. You want to understand the full cost structure and compare fees across providers. Low fees are important but not the only consideration.
Accepted payment methods – Make sure the provider supports all the major credit cards as well as other types of payments you need like ACH, PayPal, Apple Pay, etc. The more payment options the better, especially for e-commerce stores.
Reputation and reliability – Check reviews from other businesses and evaluate how long the company has been in business. You want a stable, trustworthy partner to handle all your customer payments.
Security – Find out what security protocols, standards, and policies the processor follows. Look for companies that are PCI compliant and use encryption, fraud detection tools, and regular security audits.
Features – Think about what features would be helpful for your business, like in-store chip readers, mobile card readers, recurring billing, reporting & analytics, and integrations with accounting or POS software you use.
Customer service – How responsive is their customer service? Do they offer 24/7 support? What are wait times like? You want a payment processor that will be there to help when you have questions or issues.
Pricing transparency – Make sure all fees are disclosed upfront and there are no hidden charges. Ask questions to fully understand how you’ll be charged for different transactions and services.
Any special tools – Does the processor offer any other technology or resources that would benefit your specific business, like payment links for donations, tools for subscription businesses, or invoicing software?
Industry experience – Some payment processors specialize in certain industries like e-commerce, retail, SaaS, nonprofits, etc. Consider a provider with experience relevant to your business.
7 best payment processing systems
There are many different options for payment processors these days to suit different business needs. Here are the 7 most popular payment processors and why a business might choose one over the others:
Authorize.Net: Authorize.Net is best for established businesses looking for a robust e-commerce gateway. They offer lots of features and customization options along with tools to manage recurring bills, subscriptions, and installment plans. The fees are reasonable and they have great security measures and fraud protection. Authorize.Net integrates easily with common shopping cart platforms.
PayPal: PayPal has been around the longest and is one of the most recognizable names. PayPal offers merchants a wide range of solutions from basic credit card payments and digital wallets to more advanced options. One of the advantages of PayPal is that most customers already have an account, so integration is seamless for shoppers. However, PayPal’s fees tend to be a bit higher compared to other processors. PayPal is probably best for eCommerce sites and retailers where customers are already familiar with PayPal.
Stripe: Stripe has quickly become one of the leaders in payment processing with its sleek and modern interface. Stripe offers some of the lowest rates and is very developer friendly with extensive APIs. Stripe powers some of the fastest-growing companies and startups. Security and reliability are also strengths of Stripe. However, Stripe lacks some features of more full-service processors like business reporting and analytics. Stripe is the best payment processor for small businesses that value low costs, high reliability, and sophisticated technology.
Braintree: Braintree, owned by PayPal, offers a full suite of payment processing and merchant services. They offer lots of different card readers, have very robust fraud protection tools, and have good reporting features for businesses. Braintree is particularly strong for companies that have a mobile or app-based component to their business model. However, their fees are higher compared to processors like Stripe. Braintree is a good option for established businesses that need a complete payment solution.
2Checkout: 2Checkout focuses on providing payment solutions for digital goods like SaaS, software, and online memberships. They specialize in integrating recurring billing and trial payments into digital products. 2Checkout integrates well with a variety of shopping carts and platforms. The downside is their higher fees and more complicated setup process. 2Checkout is best suited for digital businesses focused on recurring revenue streams.
Apple Pay/Google Pay: Using payment options like Apple Pay and Google Pay means your customers can pay you directly from within the Apple Wallet or Google Pay apps on their phones. Integration is simple and has no additional fees. However, you have very little control over the process and the payment data is managed by Apple/Google. These options are best as a complement to another main payment processor but not as a standalone solution for most businesses.
WePay: WePay is ideal for non-profit, crowdfunding campaigns, and community organizations looking for a payment processor. They offer very competitive rates for non-profits and their platform makes it simple to accept donations and membership payments. WePay has tools to create customized donation forms and embed donation buttons. The reporting and analytics tools are solid for non-profits.
Conclusion
There are many great choices for payment processors depending on your business needs and goals. No single payment processing system is perfect for all businesses. You must carefully evaluate your specific requirements in terms of features, cost, speed, security, and customer support to determine which option is most suitable.
Let Hana Retail make accepting payments simple and seamless for your business. You can integrate your favorite payment gateway into our retail point-of-sale (POS) system which makes it easy to accept in-store, online, and mobile payments from customers. Contact our sales team today to learn more about how our POS system can be customized to fit your business’s payment processing needs!
FAQs
What is the difference between a payment processor and a payment gateway?
A payment processor and gateway both enable merchants to accept credit cards and other payments. However, a payment processor is the actual company that facilitates the transfer of funds, while a payment gateway is the software that interacts with the processor to carry out the transaction. A payment processor handles the authorization, capture, and settlement of funds. Whereas a payment gateway serves as an interface that allows a merchant’s website to communicate with the processor’s system.
Is PayPal considered a payment processor?
Yes, PayPal is considered a payment processor. Payment processors like PayPal act as an intermediary between merchants and banks to facilitate online transactions. PayPal accepts credit cards, debit cards, bank transfers, and other payment methods from buyers, collects and verifies the funds, then deposits the money into the merchant’s bank account after deducting transaction fees.
What are payment processors examples?
Examples of popular payment processors include:
- PayPal
- Stripe
- Braintree
- Apple Pay
- Google Pay
- Authorize.net
- 2Checkout
- WePay
