If you have a product or service, you need to provide customers with every payment processing method available. Only 20 short years ago, check and card payments were the only way to go. Now, there is a multitude of payment options for consumers to choose from.
Each of these payment methods requires you to have specific software, hardware, or a combination of the two for your customers to use their preferred payment method. That’s where payment processing systems come into play.
Today, most people prefer to pay with their credit or debit card. In this case, you’ll need a merchant account and a processor to ensure you receive that payment.
Credit cards are so frequently used that the additional sales generated easily make up for the cost of maintaining a merchant account, interchange fees, etc.
Credit cards are issued by the bank. Still, many of them are also sponsored by credit card associations, like Visa, Mastercard, Discover, and American Express. You can imagine the number of transaction fees these companies charge annually, known as interchange.
In addition to paying processing rates for each transaction, maintaining a merchant account also requires the payment of a variety of account fees. These fees are different for every processor, and sometimes even among merchants using the same processor.
The Journey of a Transaction
This is the general processing flow: When a transaction is made, the consumer’s credit card data is submitted to the processing network. The network then contacts the issuing bank to check if there is enough credit available in the account to cover the cost of the transaction.
Of course, there are several security measures in between to ensure fraud protection before the transaction is approved, but you get the general idea.
After processing the transaction and dividing out the various interchange fees, the processor keeps the remainder of the processing charge. After all of this is completed, the funds are released to the merchant account.
You’ve probably experienced this for yourself, but debit card transactions are much easier to process. You’ll notice that your account updates immediately after a purchase with your debit card. In other words, if the funds are there, the transaction will usually be approved. Since the risk associated with debit cards is much lower, the interchange rates are significantly lower as well.
Paying by check has become less common, but some people still prefer to pay this way. Merchants have the option to accept checks without a processing service. However, this will still require a trip to the bank and the possibility of the check bouncing.
Employing an eCheck processing services can help you manage these setbacks if you’re willing to pay a fee. Because merchants don’t need eCheck processing, most processors charge significantly less for this service than they do for credit and debit processing.
What You Need for eCheck
eCheck processing services, typically require a check scanner. This system will scan an electronic copy of the check and submit it to the bank to confirm the availability of funds. If the check doesn’t bounce, it’s usually approved right away. This service is best for businesses that accept a high volume of checks.
Payment Processing with Digital Wallets
You’ve seen them around, the new payment method on the block. Integrating smart technology like cellphones, smartwatches, and everything else you can think of, digital wallets rely on near-field communication (NFC) technology. Currently, the most popular platforms are Apple Pay and Google Pay.
How Digital Wallets Work
A signal is passed from these smart devices to the merchant’s credit card terminal through radio waves. While the interface seems fancy, the backend is processed like a credit or debit transaction, since these devices are linked to the consumer’s card in most instances.
Payment Processing Methods
Credit and debit card transactions are processed either through a traditional, full-service merchant account or a third-party payment processor. Also, eCheck payments are processed under an Automated Clearing House (ACH) system.
As a broad overview, merchant accounts are to accept both card-present and card-not-present transactions. Transaction fees are based primarily on risk. Therefore, card-not-present transactions have a higher rate because of the higher level of risk.
Card-present transactions require a terminal to read the stripe on the back of credit and debit cards. While e-commerce and card-not-present transactions require a payment processing system to complete the transaction.
Third-Party Payment Processor
Third-party payment processors (PSP’s) can give you credit/debit card processing services without a full-service merchant account. Third-party processors charge merchants based on a simplified flat-rate pricing plan. While the rate is higher than having your own merchant account, it’s typically less of a headache for people that want to run their business. The most well-known PSPs include Square and Paypal.
What Payment Processing Options Should You Use?
It really depends on what you think is most convenient for your audience. Giving people more ways to pay has proven to increase sales. Consumers are less likely to pay or pay on time if you only offer check payment methods. Luckily, you have plenty of options. At BillingTree, we believe more is always better. Giving your customers the best payment experience is a way for you to turn that customer into a lifelong relationship.
Learn more about using our platform so you can start giving your consumers more options. Request a demo below or contact us today if you have any questions.