Cash flow is the lifeblood of your business. You can have the best products on the market, but without a payment strategy in place your cash flow and liquidity will be impacted. Payments have gone through several changes—including the shift to contactless and the introduction of mobile payments like Apple Pay and Google Pay. If you don’t accept card payments, it’s likely you’re missing out on sales. Customers are carrying around cash less and less, and the friction of having to find a nearby cashpoint may be enough for them to forgo a purchase.
If you’re just starting out, the world of payments can be a bit overwhelming. Even if you’ve been around for years, you need to stay current as the payments landscape constantly evolves. A good payment strategy maximises the value of every transaction. A poor payment strategy, on the other hand, can cause a customer to abandon their purchase at the last minute. As a result, choosing the right payment provider is critical to your cash flow and liquidity. Many business owners, however, are unsure about which type of payment provider will help them increase sales and save on unnecessary costs. Finding a great card processing service doesn’t have to be overwhelming. This guide shares a comprehensive overview about payment processing, payment gateways, and the latest payment technologies.
Payments and payment processing services are ever-evolving. Before you start accepting payments, it’s important to understand what payment processing actually means. Essentially, it’s the automatic process which seamlessly moves money from your customer’s bank account to your merchant account and your business accounts, every time a card transaction is made. Rethinking your payment strategy allows you to offer more options to your customers, potentially cutting costs and boosting your sales in the process.
Online payment processing happens in two stages: authorisation and settlement. Here is a brief overview of the authorisation process:
This authorisation process takes place in a matter of seconds. The settlement process can take several days and usually involves some variation of the following steps:
The payment gateway is responsible for transferring technical card information from the merchant to their payment processor. For online stores, they take the form of payment processing portals. In physical stores, a payment gateway is built into a point-of-sale (POS) system or card reader.
A payment processor receives payment information from the payment gateway, confirms that the customer has sufficient funds, and moves the money between the customer’s bank account and the merchant’s merchant account. During a transaction, the payment processor checks with a customer’s card network (Masrtercard, Visa for example) and bank to see if they have enough money in their account to cover the sale. If the answer is positive, it relays this information back to the merchant and customer – and allows money to be transferred between their accounts.
The payment processor is a third party tasked with linking up the different banks and card networks involved in a transaction, once it receives data from the payment gateway. It relays back to the payment gateway whether the transaction has been approved or not. The payment gateway is responsible for transferring technical card information from the merchant to their payment processor. For online stores, they take the form of payment processing portals. In physical stores, a payment gateway is built into a point-of-sale (POS) system or card reader.
Chargebacks happen when customers contest a charge on their statement with their card-issuing bank. People contest charges for a number of reasons. Perhaps they don’t recognise the charge or feel the services weren’t up to par with what was advertised.
When there’s a chargeback, the funds in dispute are held from the merchant while the card issuer works things out and decides what to do. “Working things out” can be a complicated, slow and time-consuming process involving a lot of paperwork and documentation.
A merchant account is a type of business bank account that lets businesses accept and process electronic card payments. All online businesses require a merchant account to take digital payments. Although you can’t actually access your merchant account, the funds acquired are automatically transferred to your business bank account on average within 1-2 business days. Different merchant accounts have varying transaction fees. Merchant-acquiring banks and businesses form merchant accounts through a detailed merchant account agreement that specifies all of the terms involved in the relationship.
These terms include:
The per-transaction costs the bank will charge
Established fee structures with the network of card processors
Monthly or annual fees the bank charges
PSPs handle the transaction end-to-end and act as a merchant account provider for businesses that are either unable to or don’t want to apply for their own merchant account . The simplest way to get a payment gateway for your online or brick-and-mortar retail business is to sign up with a payment service provider, and it’s an option often used by new businesses or small businesses that are not processing significant volumes of card transactions. With a Payment Service Provider (PSP) you do not normally have to send batches to a payment processor or wait for the funds to be deposited into a merchant account. PSPs essentially serve as a group merchant account and will use their pool of resources to make the funds immediately available. This could be a Paypal balance that you have instant access to or a Stripe ACH transfer that is issued the same day as the transaction.
The fees your business pays will vary depending on your payment processor. For example, Accept bundles up all the different banking and network charges within its card processing fees to make life easier.
The main costs include: