How To Choose a Payment Processor

For business owners both big and small, the search for a reliable, easy-to-use payment processor can feel daunting. From finding the cheapest way to take card payments to integrating with your existing processes to facilitating domestic and international payment transfers, choosing the right payment processor can be an important decision for your business.

This article will explore what a payment processor is, how it works, and the major factors to keep in mind when choosing a payment processor for your business.

What Is a Payment Processor?

Payment processors are the engines behind the financial transactions of every modern business. They serve as the intermediary between the customer, the business, and their financial institutions, allowing transactions to be made securely and efficiently.

Modern payment processors offer services like authorising and processing credit card payments, verifying transaction details, and handling the transfer of funds from the customer’s bank account to the merchant’s bank account.

Many payment processors can handle both online and in-person transactions. For online transactions, payment processors integrate with your website checkout process using proprietary software, and they’ll automatically record and process the transaction.

For in-person transactions, many payment processors offer either hardware or software (or potentially both) that integrate with your physical checkout process to automatically record and process transactions.

Payment processors generally charge a small fee—usually a subscription and/or a percentage of the funds processed—in exchange for performing these services. Without payment processors, doing business online and in-store would be nearly impossible in the modern world.

Let’s dive into how payment processors work.

How Do Payment Processors Work?

Payment processors are essentially a combination of a software company and a financial institution. Most modern payment processors work by providing the backend software that allows transactions to be made and tracked both online and in-store, as well as the financial functionality to receive, hold, and transfer funds.

When you sign up for a payment processor, you’ll need to create an account. Most services ask you to provide your email address, physical address, and phone number. You may also be asked to verify your identity by providing a form of legal identification, such as a driver’s licence.

If you’re signing up for your business, you’ll need to provide business information, such as the business name, Unique Taxpayer Reference (UTR) number, email address, and physical address. Once you’re signed up for the service, the payment processor will request your bank account number and routing number to process transactions.

When a payment processor processes a transaction, it uses a few specific steps:

• Step 1 – Authorisation and authentication: Payment processors authorise transactions and authenticate their legitimacy as they happen. This minimizes the chances of illegitimate or unfulfillable transactions being accepted.
• Step 2 – Verification of funds: Payment processors verify that either funds or credit is available by receiving approval or denial from the customer’s financial institution. This enables the transaction to be completed successfully.
• Step 3 – Transaction processing: Payment processors then transmit transaction details to the customer’s financial institution, receive the funds, and hold them. This ensures funds are received and accounted for before sending them to the merchant’s financial institution.
• Step 4 – Transaction settlement: Once the payment processor has received the customer’s payment, it transfers the funds to the merchant’s bank account. Once the funds are received, the amounts can be verified. You may find that the funds you receive are slightly lower than the full amount of the product or service you sold, which may be because the payment processor took a small percentage of the transaction as a fee.
• Step 5 – Maintenance: Many payment processors help to handle refunds or customer payment issues like unpaid credit cards, bounced cheques, or issues with your (the merchant) or the customer’s bank. Not all payment processors offer all these services, however, so consider looking into this before choosing the best payment processor for your business.

5 Factors To Consider When Choosing a Payment Processor

There are several different payment processors on the market, each with its own services, features, and strengths which will suit businesses operating in different industries. Credit card processing for a hotel, for instance, might look very different to how it does for another type of establishment, so it’s important to consider a range of factors before you buy.

Learning about all these options and determining which payment processor is right for you can be a time-consuming and frustrating experience, so let’s dive into the top five factors you should consider when choosing a payment processor for your business.

• Payment options: First and most importantly, you should consider the payment options the payment processor offers and determine if they fit your needs. Payment options can include cash tracking, debit cards, credit cards, cheque digital deposits, PayPal, digital wallets, crypto, bank transfers, international transfers, and more.
• Cost and transaction fees: This is a critical consideration as most business owners are looking for ways to save money and reinvest in their business. When considering a payment processor, take into account if it charges a subscription to use its service, processing fees when transactions are made, and/or transaction rates charged on payment transfers. We recommend looking for transparent pricing structures and no hidden fees.
• Security: When choosing a payment processor, consider the security practices it uses for sensitive information and payment transfers. Make sure it has robust encryption and fraud detection capabilities, and consider using a provider that is up to date with its Payment Card Industry Data Security Standards (PCI DSS) to ensure its services are secure.
• Integration and compatibility: As with anything in your business, the more processes you can automate, the better. Consider using a payment processor that integrates with your existing e-commerce platforms, physical checkout processes, accounting software, and banking providers. Automating these processes from the start will remove a ton of headaches from your life.
• Customer support: Finally, choose a payment processor that stands behind its services and offers customer support. It should be easily accessible, responsive, and offer reliable solutions to problems you might encounter. It should also offer 24/7 support to cover non-business hours or other time zones.