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How will payment processing help your small business? When accepting payments from buyers, offering more streamlined payment processing solutions may lead to benefits like increased customer satisfaction and loyalty, higher conversion rates, and potentially more revenue.
But choosing a payments processor can be an overwhelming task since each has a unique set of fees and contracts. Take the time to do comparison shopping—including using PayPal to accept payments—because the right processor can make a big difference to your bottom line. Below are 17 questions to help you make the most of your research.
Some services charge different fees to process different types of card transactions (for example, personal, business, and reward cards), as well as for different transaction amounts and the industry you’re in—just to name a few. Make sure you know exactly what you’ll be paying to process each type of transaction.
It’s not unusual for a payment processor to entice you by quoting low rates. The catch: that low rate only applies to certain types of cards and not others (see question 1). You may only find out after the fact that many of your transactions during the month didn’t actually qualify for that low rate.
For example, in January, you think you’re getting a 1.7 percent rate on your credit card transactions, but you processed several rewards cards. Even though you processed the transactions in January, come February, your processor charges you back (or bills you back) a higher rate in February. Now you’ve got two different statements with two different rates for the same transaction, which makes it much harder to figure out the actual rate you're paying.
Generally speaking, to compensate for the risk of fraud, processors charge different rates depending on how you process a payment. It’s usually a lower rate for physical card payments since there’s less risk of a fraudulent transaction (remember to check your card network cardholder verification requirements). If someone calls you to buy something and gives you their number over the phone, the chance of foul play goes up a bit (as does the processing fee typically). When someone purchases from you online, the incidence of fraud is typically the highest, so processors often cover their risk by charging you a higher rate. Make sure you know what those rates are, and then figure out how much of each type of processing you’ll do to get a rough blended rate.
It's common for processors to charge a separate fee for their payment gateway, usually on a per-transaction basis. So, in addition to the standard transaction fee – say, 2.9% + $0.30 – you may pay a gateway fee on top of that for each transaction.
When you process a return, many credit card processors keep all of the transaction fees, and may even charge an additional fee to process the refund. That means you can lose money every time a customer returns something.
Many credit card processors impose a contract term for a specific amount of time, like one or two years. Many times, early termination fees or cancellation fees are part of the agreement. That’ll make it difficult for you to switch processors if you're unhappy with how your account is handled.
From monthly plan fees to currency exchange fees to standard card processing fees, there are various costs associated with payment processing.
Some processors charge a monthly minimum fee, which you’ll pay if your monthly transaction volume is below a certain amount. This can be a big financial pain for businesses just getting up and running.
Many processors limit the amount you can process, based on your initial approval with them. Obviously, this can be frustrating if your business grows quickly or has a busy season — not to mention the impact it could have on your customers’ perception of your business.
When your payments hit a snag, will the processor be there to support you until you're back up and running? And an automated phone system isn’t the same as speaking to a live person, so make sure to ask if they have live customer support. Low rate processing fees don’t mean much if you can’t reach someone to help when you need it most.
Payment processing describes how money moves from a customer to a business during a transaction. It requires a payment gateway, which enables customers and businesses to process and complete transactions via credit or debit. We call it the PayPal payment gateway.
How does PayPal credit card processing work for business? Learn more.
Completing a transaction in person is similar to online. It involves a POS system, which stands for point of sale. Before advancements in technology, the typical POS system was a cash register. But nowadays, buyers expect digital-first, secure, and even contactless or touch-free POS systems to process and complete transactions.
Payment processing in person generally involves the authorization or approving of the sale, followed by settling the transaction and moving the funds. Once a customer presents their credit or debit card for a purchase, the information is transmitted through the payment gateway, which encrypts and sends the data to the payment processor. The payment processor then sends a request to the customer’s issuing bank to either approve or deny the transaction based on available credit or funds.
Though payment processing may sound complicated, a POS system like PayPal can work quickly and efficiently, processing payments in seconds. However, the settlement portion of payment processing can take a few days, in which the card issuer sends the funds to your merchant bank and then deposits the money into your account.
Yes, PayPal offers Seller Protection to protect eligible purchases from fraud and certain other issues like chargebacks and customer complaints. (limits apply)
Though accepting a payment from a customer is generally a seamless process, there are payment processing issues that can sometimes arise. The most common ones include:
Some processors might provide you with a seemingly low upfront monthly fee. But be sure to dig deeper: Some additional payment fees might be hidden in the fine print. These can include fees for batch processing, fund transfers from a merchant account to your bank account, as well as statement fees. Processors might "waive" some of these fees to get your business but could add them back in after a promotional period.
Yes, they typically are. Certain payment processing companies charge different fees for different cards, collectively called merchant fees.
Click here to learn more about how payment processing works.
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