As a small business owner, you work hard to attract customers and motivate purchase behavior. Once your customer is ready to check out, you need to seal the deal by offering a seamless checkout experience. This requires having a simple, flawless payment system that meets your customers’ expectations and preferences.
Whether you do most of your sales via cash, credit cards, or mobile wallets, you’ll need a payment solution to handle the actual financial transactions that power each sale. Here’s an overview of payment solutions, plus guidance for finding the right one for your business.
What is a payment solution?
A payment solution is any service, platform, or system that facilitates the transfer of money or funds between individuals, businesses, or entities. It combines various technologies to initiate, process, and finalize financial transactions, from online payments to the physical exchange of money.
For retail business owners, payment solutions are the platforms that let you accept payments from customers. For ecommerce merchants, this most frequently means processing credit and debit cards, although online shoppers have increasingly embraced other payment methods, including Amazon Pay, Apple Pay, Google Pay, and buy now, pay later options.
How do payment solutions work?
A payment solution involves the interaction of three elements: a merchant account, a payment gateway, and a payment processor. Here’s an explanation of each:
When a business wants to accept payments electronically, it typically sets up a bank account called a merchant account. This account enables the business to receive payments from customers via various methods like credit cards, debit cards, and near-field communication (NFC) mobile payments. When a customer makes a purchase, funds are debited from their financial institution and deposited into this merchant account.
A payment gateway is the technology that securely authorizes and processes the transaction between the customer and the merchant. It encrypts sensitive data (like credit card information) during transmission to ensure security. When a customer makes a purchase online, the payment gateway captures the payment information and sends it to a payment processor.
A payment processor acts as an intermediary between the merchant, the customer, and the financial institutions involved in the transaction. It effectively assures that there is permission for funds to transfer from a customer’s account to a business’s merchant account. If there aren’t sufficient funds, or if a bank denies the payment request, the payment processor cancels the transaction.
A payment service provider (PSP) is a type of payment processor that offers an additional suite of services including fraud prevention and currency conversion. Many PSPs offer reporting tools and analytics that help companies track sales, manage inventory, and gain insights into their business operations.
The payment solution process
Here’s how the three elements of the payment solution process work together to complete a payment:
1. A customer initiates payment. The customer decides to make a purchase and selects their preferred payment method (e.g., a credit card or PayPal).
2. Initial transaction processing. The payment information is securely transmitted through the payment gateway to the payment processor or acquiring bank.
3. Authorization and authentication. The payment processor verifies the transaction details, checks for sufficient funds or credit, and sends the request to the customer’s bank (issuing bank) for approval.
4. Approval or decline. The issuing bank either approves or declines the transaction and sends the response back through the same channels.
5. Completion of the payment process. If the issuing bank approves the transaction, the payment processor sends an approval to the payment gateway, which then communicates this to the merchant. The customer’s account is debited, and the funds transfer to the merchant’s account, finalizing the transaction.
How to choose a payment solution
- Supported payment options
- Fee structures
- Security compliance
- Customer service and support
- Scalability and flexibility
- User experience (UX)
- Settlement time frames
- Client reviews
As a business owner, you’ll benefit from a user-friendlypayment solution that simplifies the lives of your customers and eliminates friction at the point of sale (POS). You’ll also want one that can handle payment processing without onerous fees imposed on you and your customers. Here are some things to keep in mind when selecting a payment solution for your company:
Supported payment options
Compare the payment methods supported by a prospective payment solution and make sure they align with your customers’ preferences. Many businesses want a payment service that can process credit cards, debit cards, mobile wallets, ACH transfers, and buy now, pay later options.
Most payment solutions charge fees, including transaction fees, setup fees, monthly fees, chargeback fees, and any additional costs. Compare these across different providers to ensure they align with your budget and sales volume.
Whether you run an online store or process payments in person, your payment solution should comply with industry security standards like the Payment Card Industry Data Security Standard (PCI DSS) to protect sensitive financial information. Businesses need features like encryption, fraud detection, and secure payment gateways to properly protect their clients through the payment process.
Compatibility and ease of integration are vital for seamless transactions. Confirm that your prospective payment solution integrates smoothly with your POS system and accounting software.
Customer service and support
Evaluate the provider’s customer service quality. Are they responsive and available when you need assistance or encounter issues? Consider reading reviews or getting referrals to gauge their support quality. Many payment solutions, including Shopify Payments, provide free support for their merchants, among other benefits.
Scalability and flexibility
Consider your business growth strategy. Does your prospective payment solution accommodate scalability as your business expands? As your business reaches a wider audience, can the payment system handle increased transaction volumes without compromising performance or incurring hefty additional fees?
User experience (UX)
Consider your customers’ user experience (UX) as they interact with your payment solution in person, on laptops, and on mobile devices. A streamlined, user-friendly interface can enhance the checkout experience, reducing cart abandonment rates.
Settlement time frames
Processing payments takes time, and it can take anywhere from hours to days for a payment system to transfer funds from one account to another. Compare settlement times, as these could impact your cash flow.
Check reviews, ratings, and testimonials from other businesses to understand their experiences with your prospective payment solution. Give special heed to services that you’ll use often, such as credit card processing or support for contactless payments.
Best payment solutions
- Shopify Payments
- Apple Pay
- Google Pay
- Amazon Pay
As a business owner, you’ll have many payment solutions to choose from, both for processing online transactions and in-store purchases. Here are 10 payment solutions worth investigating:
Shopify Payments comes integrated within Shopify’s all-in-one ecommerce platform. It lets Shopify merchants save time by skipping lengthy third-party activations and payment forms, and go from setup to selling in one click.
Known for its API and extensive features, the Stripe payment service supports online and in-person payments, subscription billing, and global payments in different currencies. It offers customization options and powers online transactions for many businesses.
Popular among small businesses, Square offers payment tools, including point-of-sale (POS) systems, online payments, and invoicing. Its simplicity may suit retail and service-based businesses with little need for complex customizations.
A widely recognized and trusted payment solution, PayPal caters to businesses of all sizes. Many people have individual PayPal accounts, and some prefer to pay online using the service. PayPal’s features include secure online transactions, invoicing, and mobile payment options. PayPal’s subsidiary, Venmo, is popular for peer-to-peer transactions, and it also functions as a checkout option for online businesses.
Owned by PayPal, Braintree focuses on mobile and web payment solutions. It offers easy integration, supports multiple currencies, and is popular among businesses that require recurring payments for subscription billing.
Integrated into Apple devices, Apple Pay enables users to make secure payments in stores, apps, and on the web using their iPhones, Apple Watches, iPads, and Macs. Using API integration, businesses can integrate Apple Pay into their apps and websites for a streamlined checkout. It’s an asset for businesses whose top priority is Apple users.
Google Pay allows users to make payments in stores, online, and within apps using Android mobile devices. It facilitates quick and secure transactions through NFC technology and is widely accepted across online platforms and stores.
Amazon Pay allows customers to use their Amazon accounts to pay online on external websites. It’s known for its ease of use and is popular for reducing friction in the checkout process.
As one of the oldest payment solutions on the market, Authorize.net has a long track record of security and reliability among online businesses. It supports recurring payments, and has strong fraud prevention tools.
A subsidiary of Verifone, 2Checkout facilitates online sales and subscription billing. It also lets merchants access global payments from a wide range of financial networks. It’s popular among software companies and digital goods sellers.
Payment solutions FAQ
Are there different types of payment solutions?
Yes, there are various types of payment solutions, including traditional methods like cash and checks, digital options such as credit/debit cards and mobile wallets, and innovative systems like cryptocurrencies and peer-to-peer payment apps.
Does Shopify offer a payment solution?
Yes. Shopify Payments is a payment solution built into Shopify’s all-in-one ecommerce platform.
Can you use multiple payment solutions?
Yes, as a retailer, you can use multiple payment solutions concurrently. This multi-platform approach allows you to cater to diverse customer preferences, expand your customer base, and mitigate risks associated with relying on a single provider.