The Ultimate Guide to Choosing a Payment Processor for Your Business
In today’s world, where digital transactions dominate, it is extremely important to work with an efficient payment processor for the growth of your business. Whether you are a large organization or just a start-up, choosing the right payment processor is a crucial step for your business, as it can significantly impact your profits and overall customer experience. With thousands of options available in the global payment industry and each processor claiming to offer something unique, it’s essential to understand what to look for before accepting one. This ultimate guide provided by QuadraPay will be your Swiss army knife when it comes to choosing the perfect payment processor for your business.
Understanding Payment Processors
What is a payment processor?
A payment processor is a licensed financial institution responsible for facilitating credit and debit card transactions between merchants and customers. The payment processor moves funds from the customer’s chosen payment methods to the merchant account. It handles various tasks, including transaction authorization, data encryption, and the settlement of funds.
How Payment Processors Work
Payment processors securely transmit transaction data among three key parties involved: the merchant, the customer’s financial institution (which issued the credit card), and the relevant payment network (such as a card scheme). When a customer initiates a transaction on the merchant’s website, the payment processor first verifies the transaction’s validity, then encrypts the transaction data, and finally transfers the funds from the customer’s payment method to the merchant account. This process typically involves multiple steps, including authorization, batching, clearing, and settlement, all aimed at providing a smooth electronic payment experience.
Types of Payment Processors
Traditional Merchant Account Providers
Traditional merchant account providers offer businesses dedicated merchant accounts, enabling them to securely accept credit card payments. To obtain an account from a traditional merchant processor, businesses must undergo a rigorous underwriting process. In this type of account, the integration liability falls more on merchants, as direct merchant processing for banks remains an off-balance activity. While banks may offer integration guidelines, merchants may need to implement integration and security compliance independently.
With dedicated merchant accounts, businesses gain better control over their merchant processing activities. Traditional merchant processors, typically banks, eliminate the need for additional payment processing intermediaries, making them preferred by high-volume transaction merchants.
A use case of traditional merchant processors might involve a merchant using a Bank of America merchant account and an NMI, or authorize.net gateway. In this scenario, the merchant may need to sign up for three services: one with the traditional merchant processor, one with the payment gateway, and one with a PCI compliance company.
Payment Gateways
Payment gateways serve as an online platform facilitating the secure transmission of transaction information between merchants and acquiring banks. The payment gateway captures payment information during online transactions, encrypts it to prevent fraud, and then transmits the encrypted information to the relevant payment processor or acquiring bank for authorization and processing. Payment gateways play a vital role in enabling businesses to securely accept credit card payments over the internet.
Payment gateways differ from traditional merchant processes by offering additional features, including support for multiple payment methods and alternative payment options, the ability to add multiple merchant accounts to a single payment gateway for enhanced control over account management, support for subscription and recurring payments, and a built-in virtual terminal for MOTO (mail order or telephone order) transactions. With these features, payment gateways are a preferred payment processor for companies requiring better control over their payment processing activities.
A use case of payment gateways as a payment processor would be an international e-commerce website integrating a payment gateway to securely process online transactions. This allows customers to pay for their purchases using various payment methods, such as credit cards and digital wallets. The merchant may also offer buy now, pay later options, e-checks, ACH, and many more payment methods. The availability of multiple payment methods is a key advantage merchants gain with payment gateways.
Integrated Payment Solutions/ Full Stack Payment Processor
An integrated payment solution, also known as a full-stack payment processor, combines the functionality of a traditional merchant account and payment gateway into a single platform. This kind of solution offers businesses a comprehensive payment solution with features like detailed reporting, analytics, and fraud detection. Full-stack payment gateways represent the most modern way of accepting online payments, providing all the necessary features a merchant can think of with one single agreement. Payments are processed through various channels, and the full-stack payment processor is responsible for intelligently routing payment traffic for better conversion. This kind of solution is extremely popular among small and medium-sized businesses.
Use case of a full-stack payment processor. A small online boutique that uses an integrated full-stack payment processor to manage e-commerce transactions. With the full-stack payment processor, the boutique has access to the functionalities of traditional merchant accounts and modern payment gateways. This allows the business to accept payments from customers through various methods, such as credit cards and digital wallets. Additional features like fraud detection help the boutique efficiently monitor and manage their payment operations. The intelligent payment routing technology helps the online boutique easily process transactions even on busy days, reducing transaction failures and maximizing conversions. For small and medium-sized businesses, a full-stack payment processor is the best option.
Importance of Payment Processors for Businesses
A payment processor brings numerous benefits to any business, and online businesses of all sizes are increasingly utilizing online payment processors. These payment processors help businesses accept electronic forms of payment, such as credit cards, debit cards, digital wallets, online bank transfers, QR code payments, and various currencies. Payment processors also take multiple steps to reduce the risk of fraud and chargebacks, while timely settlements of funds improve merchants’ cash flow. Moreover, payment processors ensure the security of transactions and full compliance with required regulatory guidelines. With the right payment processor, businesses can offer exceptional customer satisfaction, leading to better business growth. E-commerce merchants can easily accept cross-border transactions, allowing them to reach a global audience. Additionally, detailed reporting and analytics provided by payment processors help businesses have a better understanding of future sales projections and present business statistics.
Key Factors to Consider
Transaction Fees and Pricing Structure
When a merchant uses the services of a payment processor, he is expected to pay for them. These charges include fees for transactions, monthly subscription fees, interchange fees, and other applicable charges. It is important for any business to understand the pricing model offered by different payment processors and how the merchant benefits from it based on transaction volume and revenue model. Work with a payment processor that offers a transparent pricing structure and is cost-effective without compromising on the quality of service.
Security and Compliance
To ensure full compliance with the security protocols laid down by payment regulatory authorities, it is extremely important for payment processors and merchants to protect customers’ data and transaction information. You should work with a payment processor that fully complies with the latest PCI DSS standards. With full compliance with these standards, merchants can reduce fraud. Additionally, you can consider additional features like tokenization and encryption to further improve the security of transaction details.
Integration Options
Integration options refer to the ways in which you can connect the payment gateway to your website or payment system. Whether you’re using an e-commerce platform or accepting retail payments through a point-of-sale system, or even if you have your own mobile application, you should work with a payment processor that has the capability to easily integrate with your payment platforms. Choose a payment processor that offers modern, advanced APIs, plugins, and SDKs, as these allow for smooth transaction processing and better integration.
Payment Methods Supported
The payment method requirement varies from merchant to merchant due to the target location. If you are only selling to customers within your home country, then you may be okay with a limited number of payment methods. However, if you aim to expand your e-commerce business and attract customers from different parts of the world, you will need to work with a payment processor that offers a wide range of payment methods. These should include credit cards, debit cards, digital wallets, bank transfers, and alternative payment methods like PayPal and Apple Pay. Keep in mind that in many countries across the world, credit cards and debit cards are not the primary mode of payment. Local alternative payment methods can attract more business to you. Allowing your customers to choose local payment methods gives them better comfort and can increase your sales.
Customer Support and Service Level Agreements
It is important to look at the customer support options before choosing a payment processor. In the merchant services industry, technical issues can occur at any time. These can be small issues or even major ones; however, they can be very easily managed if the payment processor provides you with good support. Look for a payment processor that is interested in offering you responsive customer support through multiple modes of communication, such as phone, email, and chat. Along with that, also carefully read the service level agreement provided by the payment processor to understand the guaranteed response time and uptime commitments.
Reputation and Reliability
Choose a payment processor with a good reputation and a wonderful track record of reliability in the industry. You can use available online resources to check the reputation of the payment processor. There are review sites, testimonial sites, and rating platforms that help you assess the reliability and performance of each provider. A reputable payment processor with a good track record can provide you with peace of mind and minimize the risk of disruptions to your business operations.
Scalability and Growth Potential
As a business owner, you must have a vision for how you plan to grow your business. Where will your business be in the next 5 years? Align your goals with the capabilities of the payment processor. See if your payment processor is scalable enough. Can your payment processor handle higher sales volumes? Can it allow you to venture into new emerging markets like Latin America and Africa? Can it allow you to seamlessly accept payments from the European Union and Asia Pacific? A payment processor that has extensive experience working with merchants from different countries can be the best option for you if you are interested in building a global e-commerce brand.
User Experience and Interface
The user experience and interface of the payment processor platform play a crucial role, as they have an impact on the minds of your customers. With a better user-experience interface, customers prefer to spend more time on the e-commerce platform. This translates to better conversion. Check with the payment processor if they offer a user-friendly interface, an easy-to-navigate dashboard, and customizable features. Together, these will enhance productivity and overall user satisfaction.
Contract Terms and Flexibility
For you, it is important to review the contract terms and flexibility offered by each payment processor before making the right decision. When evaluating the contract terms, look at some of the most important factors. These mainly include the length of the contract, early termination penalty fees, pricing adjustment policy, and possible restrictions or limitations. Inquire with your payment processor about who takes ownership of the data and if they adhere to the full regulatory requirements for protecting sensitive information. Check if the contract mentions what kind of support the payment processor will provide. Do they offer 24/7 support? Explore if there are any renewal terms and if there are any additional charges for them. Check if your agreement allows you to implement an exit strategy for the long term, even if you don’t like the services. If your contract is lengthy, it doesn’t hurt to request a legal review. Ask your legal team to review the contract before signing. If the contract terms need adjustment, suggest to the payment processor that they implement notification and negotiate for it. Work with a payment processor that has flexible terms and is interested in adapting to the changing dynamics of your business.
Assessing Your Business Needs
Understanding Your Sales Model
Before selecting a payment processor, it is extremely vital for you to understand your sales model. Depending on your sales model, you will have to choose the right payment processor. To understand your sales model, you will have to consider various factors. These include what products or services you offer, whether you operate online or offline, and where you sell. Additionally, you need to know your sales volume and average ticket size. For example, if you are a retail store with a high volume of in-person sales, you will need a retail credit card terminal to accept face-to-face payments. However, if you are an e-commerce platform selling products and services globally, you will need an online payment gateway that allows you to accept payments from different countries using various methods.
Identifying Target Markets
Understanding your target markets, where you want to sell your products, is crucial for boosting your business. Learning in detail about the target market can help you identify factors such as demographics, customer preferences, and purchasing behavior. Different demographics may have varying payment preferences; some may prefer credit or debit cards, while others may opt for bank transfers or traditional cash payments.
For instance, if your target market consists mainly of millennials, you might prioritize payment options like mobile wallets and digital payment platforms, including credit and debit cards. If you operate internationally, you may be interested in working with a payment processor that can accept multi-currency payments and complies with regional regulations and standards.
Estimating Transaction Volume and Value
Evaluating your transaction volume can greatly assist you in choosing the right payment processor for your business. For businesses expecting high-volume sales with frequent transactions, working with a payment processor offering flat-rate pricing or volume discounts can significantly reduce costs. Additionally, high-volume merchants may require enhanced security measures and fraud reduction capabilities to safeguard against the potential risks of e-commerce transactions. Opting for a stable payment processor with a similar business trajectory should be a better option for you. Understanding your transaction volume also enables you to forecast revenue, plan cash flow, and allocate necessary resources to achieve the e-commerce goals of your business.
Evaluating Future Growth Plans
Evaluating the future growth plans of your business involves looking at various factors, such as how your business may evolve over time and what changes you can expect in your payment processing needs. As your business expands, can your payment processor also scale with you? Can your payment process accommodate increased transaction volume, allow you to diversify your product lines, or facilitate entry into new markets and acceptance of payments in other currencies? Is the processor already operating in the markets where you plan to grow or venture into in the future?
Work with a payment processor that offers flexible solutions and customizable features to accommodate the growth of your company so that it becomes a long-term partner for your business. Also, consider how potential changes in technology, consumer behavior, and industry regulations may impact the payment processing requirements of your company.
Analyzing your budget and cost considerations involves examining various elements of the pricing structure, such as transaction fees and any associated additional costs. Remember, cost is an essential factor; you must know how much you can afford when paying the payment processor to allow you to accept credit and debit card payments. However, that amount should not be so large as to significantly reduce your profits. Also, consider the basic fact that price is not the only factor to consider; you should also assess the quality of service the payment processor offers.
Today’s payment processing market is highly competitive, with hundreds of solution providers offering similar services. Some processors may charge very low fees, while others may appear more expensive. Always compare the features and services offered with the prices being quoted. You do not want to work with a payment processor that is cheap but compromises on service quality.
It is essential to consider your budget constraints but also prioritize factors such as security, reliability, and customer service to ensure you are getting the best overall value for your investment. Conduct thorough research on additional costs that may be involved, including setup charges, integration requirements, hardware or software needs, and ongoing maintenance costs. A detailed analysis of all these factors will help you determine the actual cost of ownership of the payment solution.
Researching and Comparing Providers
Researching Available Options
Begin your research by compiling a list of available payment processors that cater to merchants from your location and industry. This list can include traditional payment processors, payment gateways, and full-stack payment processors. We recommend researching online, checking websites for recommendations, asking fellow business owners about the payment processors they use, and exploring industry publications to identify potential payment processors. Make sure to consider factors such as the reputation of the processor, how long they have been operating in the market, and whether they specialize in the industry in which you operate, as this can help them offer better value.
Reading Reviews and Testimonials
You can check reviews and testimonials online to see what businesses have to say about their experience with different payment processors. You can check various review websites, or you can also look at the reviews on reputable forums and social media channels. Pay attention to both positive and negative feedback, and consider how this feedback relates to specific features and functionalities that may be vital for your business. Keep in mind that there will always be some negative reviews about every large company, but you have to make your judgment by looking at the overall reviews. If you are in doubt, there is absolutely no problem with asking the payment processor to clarify a review that you have seen on the internet.
Requesting Quotes and Demos
Once you have created the list of potential payment processors, it’s time for you to reach out to them and request quotes and demos of their services. This allows you to get a better competitive analysis of the pricing structure, the features they offer, and the user interface. During demos, do not hesitate to ask questions about specific functionalities that are related to your business, such as integration options, security measures, and customer support.
Once you have received the demos and quotes from each processor, it’s time for you to conduct a careful analysis of the offerings of each processor. Pay detailed attention to factors such as the transaction fees they are asking for, the accepted payment methods available, whether they allow you to accept international payments, what fraud reduction measures are in place, what reporting and analytics capabilities the merchant center has, and whether you can easily integrate the payment solution into your current website or retail store. Closely consider factors that are extremely important for your business, and also look at any additional nice-to-have features that the processors are offering but are not critical.
Evaluating Additional Services and Tools
Payment processors offer additional services along with the core payment processing facilities. Many payment processors offer a range of value-added services that include the ability to accept recurring payments, manage subscriptions, handle online invoicing, provide virtual terminals, and offer mobile payment solutions. Reach a judgment on whether these additional services will benefit your business. By researching and comparing different payment providers in detail, as a merchant, you will be able to make an informed decision that truly aligns with the goals of your business and also offers a wonderful experience to your customers.
Making the Decision
Narrowing Down Your Choices
After carefully conducting thorough research and comparing the offers from various payment processors, it’s time for you to narrow down your choices. Essentially, you will remove the processes that do not align with your requirements and focus on those that appear to be a good fit for your needs. To do this, carefully review the features, pricing structure, integration capabilities, support options, and other relevant factors provided by each provider.
It is a good idea to create a shortlist of top contenders that best align with your requirements and preferences. Your company’s payments manager, who will possibly be creating the shortlist for you, may eliminate providers that don’t offer the essential features needed for your business operations. Review those providers that have a strong track record of reliability and providing secure transactions. Consider how each provider has performed over the past years and whether they align with the growth potential of your company.
Reach out to industry forums and platforms to get insights about the operations, features, and benefits of these payment processes, as well as the experiences others have had doing business with them.
Conducting a Trial Period or Pilot Test
Before accepting any long-term agreement, ask your payment processor if they can provide you with a trial period. Generally, it is a good idea to start with a trial because it gives you an overall understanding of the features, benefits, and other factors related to the payment processing service. With trial periods, you can assess the performance of the platform, the user experience, and how well the solution integrates with your business’s everyday operations.
During the trial period, you should test various payment methods to see if they really work and how effectively they work. Additionally, consider factors such as the speed of transaction processing and how easily the platform integrates with your existing systems. Ask your team members about their experiences interacting with the payment processor and using the platform, including the quality of customer service. Get feedback from your IT professionals regarding any technical issues or errors they encounter on the back end of your e-commerce platform.
Monitor any challenges that may occur throughout the trial period and communicate with the payment processor for resolution. This trial period allows you to thoroughly evaluate the payment processor’s performance and compatibility with your business before committing to a long-term contract.
Negotiating Terms and Pricing
Once you have selected the preferred payment processor based on your analysis and testing, it’s time for you to look at the pricing. It is an industry-known fact that negotiation works in the merchant processing industry. Most providers offer competitive pricing; however, these may also be negotiated if your sales volume is high or if you are ready to accept a longer contract or subscribe to additional bundled services. All these factors can help you secure reduced transaction pricing.
When negotiating pricing with your preferred payment processors, evaluate the rates and offers presented by other providers. Negotiate on favorable terms for transaction fees; ask your payment processor to either waive the set fee or give a discount on it. Read the merchant account agreement carefully and identify if there is any contract termination fee. If there is, ask your payment processor to either remove it or reduce it.
Keep in mind that when it comes to pricing, feel free to ask for clarification about any elements that may not be clear in the terms sheet. It’s essential to ensure that you fully understand the pricing structure and any associated fees before finalizing the agreement with your chosen payment processor.
Reviewing Contract Terms and Conditions. Seek legal help.
Before accepting the contract, carefully review the contract terms and conditions. Pay close attention to aspects such as the fee structure, the duration of the contract, security compliance, termination clauses, and penalties. The contracts are usually very long and are generally written in legal language, which may not be very clear to the common public. You may want to get the contract reviewed with your legal team and identify clauses that may go against you.
You can share a copy of the merchant account agreement with your legal team for their consideration. Along with that, you can also discuss any concerns or questions you may have about the agreement. It’s a good idea to consider the recommendations provided by the legal team and ask the merchant account processor or payment processor to modify the agreement. You can use your negotiation abilities to modify these clauses to either be favorable to you or neutral for both parties. By following these simple considerations, you can come to an agreement with a payment processor that is transparent, affordable, fully compliant, and believes in working on genuine terms.
Setting Up An Account With Payment Processor
Setting Up Your Account
Setting up your account with your preferred payment processor involves creating an account with the chosen provider. For this, the provider will require basic information about you and your business. This may include business registration documents, personal identification documents, previous processing history, domain ownership certificates, supplier agreements, or any other licenses that may be required for your specific industry. The payment processor will verify your bank account to ensure it matches the company name, and the settlement currency should match the operating currency of the bank. Once your account is approved, you may need to implement some initial security modifications, such as enabling two-factor authentication and selecting the required payment methods.
Integrating with Your Website or Point of Sale System
Your customers can make payments to you once you perform the integration. To integrate the payment gateway with your website or point-of-sale system, the processor will provide you with an integration guide. This manual provides clear instructions on the steps to follow to connect the payment gateway to your website or point of sale system.
For an online business, integration is generally done by adding a plugin to the merchant’s e-commerce website. These plugins typically work with popular e-commerce content management systems like Shopify, Wix, BigCommerce, WooCommerce (WordPress), Magento, PrestaShop, and OpenCart. E-commerce websites built on custom codes may use API documentation to manually integrate the gateway into the website.
For a brick-and-mortar store where the merchant accepts payments through retail credit card terminals, the integration process may differ slightly. Sometimes, the merchant may be required to use additional hardware for integration, while in other cases, only a software application needs to be run on the point of sale system for integration. During the integration process, it’s extremely important to be patient and follow the instructions provided by your payment processor to ensure smooth integration.
Testing Transactions and Security Measures
Before starting to accept live credit card transactions, your payment processor will offer you the ability to perform test transactions. These test transactions simulate different payment scenarios to verify if the payments are processed correctly and accurately and if the funds are deposited into the account as expected. Keep in mind that your payment processor will provide you with test cards to perform these test transactions. When you perform test transactions with these test cards, you will not receive actual payments; these are just demos. However, the payment processor will assess whether the entire process, including payment settlements, went smoothly or not. While performing test transactions, try to use various payment methods and different transaction amounts.
Training Staff and Providing Support
After the integration, you will need to train your staff members and ensure they understand how to use the payment processing system effectively. This includes educating them on processing payments, handling customer queries, and steps to resolve issues related to payment processing. Additionally, you should inform them about how to access customer service, providing phone numbers and email addresses where the team can contact support when they encounter problems using the payment system. It’s also important to educate your staff members about basic compliance guidelines, including steps to ensure transaction data security and card information security.
Monitoring Performance and Analytics
After integration and activation of the gateway, it’s important for you to regularly monitor the performance and analyze the transaction data. This will help you gain insight into your business’s financial health and customer behavior. When you’re monitoring the performance of your payment solution, make sure you track metrics such as transaction volume, transaction success rate, and average transaction value. Additionally, identify spikes in transactions during different periods of the day or night within a 24-hour period.
By carefully analyzing the transaction data, you can understand trends and gain insights into preferred payment methods, peak purchasing times, and the geographical distribution of your customers, among other factors. Carefully evaluating these details can help your company’s management team implement better marketing strategies and modify products to increase customer satisfaction and overall sales volume.
Optimizing Your Payment Process
Identifying Areas for Improvement
Once you have access to the transaction data analysis, you can easily identify areas of your payment process that may need special attention. This could involve improving the checkout process, which will reduce friction and decrease cart abandonment rates. Alternatively, it may include steps to optimize your payment gateway integration by reducing transaction delays. Addressing security concerns to increase customer trust and enhance data protection is also crucial. By focusing on these areas of improvement, you can implement a payment solution that truly works for the growth of your company.
Implementing Conversion Optimization Strategies
Conversion optimization refers to vital strategies that can help increase the percentage of website visitors who complete a desired action on your website, such as making a payment for a purchase. Conversion optimization mainly focuses on improving the conversion rate of visitors who proceed through the checkout process and complete a transaction. To optimize the conversion on your website, you may have to modify the design and layout of the checkout page, simplify payment options, and offer guest checkout. Providing clear and transparent pricing information develops trust and also helps improve sales ratios. By implementing conversion optimization strategies, you can grow your revenue.
Staying Updated with Industry Trends and Innovations
The payment industry is constantly changing, implementing new technologies, adopting new regulations, and striving to offer better services to suit customers’ changing preferences. As a merchant, keeping yourself updated with the latest trends in the payment industry gives you a competitive advantage. The payment industry overall focuses on improving the overall transaction volume on a global scale, and you, as a merchant, are part of that common objective.
Keeping track of changes in the payment industry can give you insight into why they are happening and how they can impact your business. If there are any disruptions that may happen in your industry, staying in touch with industry updates will give you this information beforehand, so you will not experience sudden downturns. Additionally, if a new technology has the potential to bring in more sales, being updated with industry information will allow you to be at the forefront of implementing those strategies. By staying updated on the latest trends in the payment industry, you can align yourself with global trends.
Final Thoughts About Choosing a Payment Processor
Choosing the right payment processor is extremely important for your business. One wrong decision can lock you into a long-term, disappointing contract with the wrong processor. By carefully understanding your business needs, researching available options in the market, and thoroughly evaluating the key offerings of various payment processors, you will be able to make an informed decision that aligns perfectly with your business goals. Remember, you should regularly optimize your payment process to ensure better efficiency in the fast-changing landscape of e-commerce.
