Our world has significantly shifted. Once a primarily cash-based society, businesses are slowly finding ways to allow customers to pay with methods beyond cash. While cash remains a popular payment method, many consumers have jumped over to alternative payment methods. Statistics show that compared to 10 years ago, nearly “73% of American consumers are using cashless often.” In fact, according to the same survey, a scant 14% of respondents shared that they still use cash for payments, the majority having already moved over to card payments.
If you’re a small business owner, the chances are that you probably already know how important it is to allow your customers flexibility and options when paying. Accurately choosing your payment provider is one of the most critical decisions you’ll make for your business and your client. Allowing your customer the flexibility to pay by credit or debit card, or even cryptocurrency (yes, really!) requires that you have a trustworthy payment processor. A payment processor acts as a mediator between you and your client, moving money from your customer’s checking account or credit card to your company’s bank account.
Making it easier for your customers to pay via a card (and even help them rack up some sweet points and rewards) can go a long way towards building trust and customer loyalty. But before being able to offer your clientele this helpful service and accept credit or debit card payments, you will need to have a payment processor in place.
What is a payment processor?
Let’s dive into detail about payment processors.
Payment processors are an intermediary between your business and the financial institutions involved in a merchant transaction.
In essence, a payment processor authorizes payments and processes them for your store. From the moment that your customer swipes their card, the processor steps in and takes care of everything: from encrypting their information, sending that information to their bank for confirmation, and finally sending the funds to your bank. The process for the payments to be securely handled includes a few steps that the payment processor manages.
- The payment processor verifies the customer’s billing information, i.e. the credit card details.
- From there, they ensure the correct amount of funds are available on the customer’s card and then authenticates funds for each payment.
- If there are enough funds available, the processor approves the payment requests.
- At this step, upon approval, the processor provides an order confirmation.
- Then, the payment processor approves transactions and transfers funds to your merchant account. The merchant account is a temporary account that holds the payments from the customer’s bank.
- Once all is approved, the processor moves the funds from the merchant account to your bank account.
When you partner with a trusted payment provider such as Knit, all the above transactions will occur in a secure, encrypted payment processor server. This ensures that your customer’s bank account or credit card information is safe and secure.
Voila! Now you know how payment processor transactions work.
Who is involved in a payment transaction?
In a typical online payment transaction, you can expect the same players. These include the merchant (you), the customer or client, the technology (i.e. the POS system you use) and the payment processing partner, such as Knit. Payment transactions are processed from the transaction (when the customer pays) to the payment of funds into a merchant’s bank account.
So, how do you employ this fantastic technology in your payment flows? Payment providers can enable you, as a merchant, to accept payments the following ways via:
- Credit and debit cards
- Check or Cash
- Bank/Automated Clearing House payments (ACH)
- Contactless payment (e.g., Apple Pay or Google Pay)
- And even cryptocurrencies (read more here)
By providing your customers with many ways to pay, you increase their chances to purchase more from you.
Now that you understand a bit of what a payment processing partner can do for your company, let’s look at what you, as a small business owner, can do to choose the right payment provider to partner with. To get started on selecting the right business payment provider, here are six quick considerations to making the right decision:
1. Understand whether your business needs a payment processor or not.
Like choosing any business service provider, choosing your payment provider can come with many nuances. It’s not as simple as making a list and picking just one; understanding your needs and partnering with a provider can help you achieve specific company goals and can help you go the extra mile.
By asking yourself a few questions, you can quickly narrow your scope. Here are some questions to start:
- Do you run a business? What type of business is it?
Depending on your business size, i.e. if you are an SMB, you will want to go with a payment provider with experience helping companies your size. Don’t forget to think ahead: how, if at all, can you and your partner grow together?
- Do you have existing tech infrastructure in place already?
This would include a point of sale (POS) system already integrated into your company workflows. If you do, you must consider payment providers that will quickly and seamlessly integrate with your existing systems, helping you avoid having to do an entire system overhaul (and potential data loss and cash flow disruption!).
- Do you have an accounting or payments partner that could be helpful in the process?
If you’re already working with an accounting or payment partner, such as Knit Payroll, you can work with them to find something that fits your specific business needs. Check out our new Knit Payments product here and learn how Knit can help you provide your customers with payment flexibility and security.
Depending on your answers to the above questions, you can home in on the ideal payment provider for you and your customers.
2. Outline the equipment you need to roll out this service
What equipment you, the merchant, will need depends on your customers’ unique payment preferences and your type of business (B2B? B2C?), as you may have identified above.
Once you identify your company size and stage, you can go ahead and find the perfect combination of equipment that’s right for your business, from simple POS terminals to modern in-app-based payments. Especially with the advent of cryptocurrency, finding a partner that provides a solid base while looking ahead to future technologies is vital.
Often, when you work with a trusted business payment provider, they will help you navigate this stage, helping you understand what you may need to bring in. Tools and equipment can include:
- Credit card terminals
- Mobile payment acceptance
- Integrated POS systems
- And more.
3. Understanding fees!
While they may all look similar, different processors come with additional fees. Being aware of these fees can help you save money and time.
Depending on the type of business, total spend, and transaction volume, payment processing companies offer various cost and fee structures. Firstly, there will be an interchange fee. An interchange fee is a fixed fee associated with transaction processing, where the card brand’s network sets rates.
Generally, high banking fees can severely impact your business’s bottom line, especially for small businesses. While you may be focused on providing your customers with ease of payment, you may end up paying more than you are making when your payment provider’s fees are high. To learn more about fee breakdown, check out this great post on the average credit card fees per credit card.
And, did you know that most payment providers charge different fees based on how your customer chooses to pay? This means that if they swipe vs. key-in via a POS terminal or vice versa, you could be paying higher rates per transaction. Payment Depot has estimated that when taken together, the average costs for credit card processing are:
- 1.5% to 2.9% for swiped/dipped cards
- 3.5% for keyed-in transactions
All of these fees can impact a growing business’s profit margins if not considered correctly. Take the time and do your research and speak to professionals before choosing a business payment provider.
4. Consider the ease of use.
Making a move over to cash-less isn’t just about making it easier on you as a merchant. It’s about creating a better customer or client experience. As we mentioned above, customers are carrying less and less cash but are also looking for convenience and security when making purchases online or in-store.
Make sure whatever business payment provider you choose helps your customers securely and intuitively pay in the way they prefer.
5. Security is a must
Speaking of security, make sure that the payment provider you choose is secure. While paying via card or through avenues such as Google or Apple Pay, customers trust you to keep their information safe.
There are a myriad of different tools and protocols that exist around payment security. Dive into fraud prevention and security with your chosen payment provider when you are in the evaluation stage. Taking the time to do this will make all the difference in your relationship and ensure that you keep your brand promise to your customers.
6. Customer service
Choosing the right payment provider to grow with is essential. Beyond selecting the tools that fit your customers the best, you as a business owner will also be the customer in this situation.
In this sense, you must consider the type of service your payment provider offers you, the merchant, as their client.
Trillions of in-store and online transactions are processed daily in a safe, quick, and efficient way. You need a partner to help make sure things run smoothly. Ease of use, security and an intuitive system are all things to consider when evaluating which tools you bring into your business. If there are any issues in the back end, you need to have a business payment provider that can help you get unblocked or resolve any problems you may come across.
While payment processing has become very reliable, there is still no such thing as a completely stable system. There might be times when you might experience unexpected road bumps or interruptions that your partner can help guide you through. Knit is a great partner that can provide around-the-clock support when you need it. Try us out for free, for 30 days.
Find a payment provider that, along with the above, gives you fast access to your funds, provides round-the-clock customer service, and is honest and helpful.
Our tip? Compare a few payment providers and choose the one with the expertise and support you need for your online and in-store transactions. Make sure that you know what your business-specific needs are and choose accordingly. Be aware of fees, customer service and security and make sure you find a partner that will grow with you.
The ideal payment provider can make a world of difference for your business and the trust you are building with your customers. Are you interested in learning more? We just launched our payments product. Check it out today.