It is crucial for business owners to understand the varying forms of payment acceptance available in today’s marketplace. Customers expect paying for a product or service to be fast and simple. If it is anything but, the business owner will likely miss out on sales.
In addition to missing sales, the wrong processing system might drain your business of funds that could be better used elsewhere. The basic overview provided here will help you understand the fundamentals of payment processing so that you know what steps you need to take next.
Why Should You Learn The Basics? Your Profits
The form of payment acceptance that a business uses can affect their profits significantly. Not only do different methods of accepting money come with unique charges which affect profit margin, but the ability to accept specific forms of currency also may determine whether a person buys or not. The experience that they have while paying will influence whether they return to your business or not to make a second purchase.
Imagine that you are out on a walk and you see a booth in the street with jewelry for sale. You find a keychain that you would like to buy. It costs ten dollars, but you realize that you don’t have cash with you. You have your debit card, but it turns out that the vendor can’t accept cards. He just lost your sale.
If he tells you that he does accept cards, but offers to take your information in a way that you can’t immediately identify as trustworthy, you might decline. If he takes cards and has a steep transaction fee rather than a reasonable one, he doesn’t make a significant profit on the sale.
With this example, you can see how vital acceptance methods are for business owners, whether they are small independent vendors or established companies that process thousands of transactions a day.
Two Fundamental Sales Models
When we talk about payment acceptance, there are two primary sales models to consider. The first is a brick-and-mortar business situation, in which a customer arrives in person to make a purchase. In this case, the customer presents a method of paying and the vendor either swipes, scans, or accepts the offering and it enters into a system.
The second fundamental sales model is online sales. Ecommerce is growing faster than any other retail sector, and many brick and mortar stores that recognize this offer an online sales channel in addition to in-person selling.
With online sales a customer is unseen by the vendor. The customer opts for a buying opportunity by clicking a button or placing an item into a virtual shopping cart. Then the customer completes a checkout procedure in which they enter their credit card information.
The credit card information is sent through secure channels to the customer’s bank account, and a transfer is initiated. The money is transferred from the customer’s account to the vendor’s merchant account, finishing the transaction.
You can see that there are differences in each sales model. The most significant difference is that with an online purchase, the business representative never sees the customer. This invisibility opens up the threat of fraud, which is the main reason that processing fees for online sales systems are more than for in-person sales.
Accepting Cards On Your Website
Do you want to know how to accept credit card payments online? Whether you are a brick-and-mortar retailer that wants to add another sales channel to your business operation, or an online-only seller, it is crucial to have a way to accept customers online safely.
Ideally, the credit acceptance method you use will encourage sales rather than deter them, and be cost-effective and hassle-free on your end. Online credit card acceptance requires two main components: A merchant account and a payment gateway.
A merchant account is a specific kind of business banking account that allows you to accept money and then transfer it to a checking account where it can accumulate or be spent. A merchant account can be thought of as a “holding space” for money. It is not the money’s final destination.
The second component is a payment gateway, which is the page where a customer will put in their credit card information. Customers tend to like payment gateways that look trustworthy and are easy to use.
These two components can be as simple or as complex as your situation requires. For example, a solo entrepreneur who wants to sell a single item repeatedly, like a book, could use a processor such as PayPal.
To do this, the solopreneur would create a PayPal merchant account and then follow a few steps to create a buy button or link. They can then present customers with that button or link. When the customer follows the link, they will enter into the payment gateway that PayPal has created for that product.
The customer enters the credit card information, and the information is encrypted so that it can be safely sent to the bank and ultimately transfer funds into the solopreneurs business account. You can see that through one provider, PayPal, the business owner gets both a merchant account and a payment gateway, all in one package.
That was a straightforward example, but methods of accepting credit cards might also be more complicated. For example, rather than getting a merchant account and payment gateway through one provider, like Paypal, a business owner could decide to merge two different services.
Established business owners may be eligible for merchant accounts through their bank of choice. Some banks offer merchant accounts, and some don’t. Acceptance is selective. If a business owner can obtain a merchant account, they would then need to research and purchase a payment gateway provider.
Whether you decide to work with an all-in-one merchant account and payment gateway set up or a configuration that is unique to your business, there are certain aspects that all money acceptance systems should include.
- Needs to be safe and have an excellent reputation (look for PCI compliant providers)
- The service charges need to be within your business’s budget.
- The terms for ending the contract with the provider must be acceptable, so that if you have problems you can make a change.
Looking for the Right Processor
You can see that accepting credit cards online isn’t as straightforward as you may have hoped. It requires that you work with a company that can process incoming funds. Each service provider will have unique attributes that make them right for specific business owners. To find the right one for you, you need to investigate the following details of the provider:
- Transaction fees
- Flat rate
- Set-up process and fees
- Cancelation fees
- Customer service availability
- Ease of use
Compare these attributes with your unique business situation. Are you or do you have access to a skilled programmer? How many transactions do you do per day, week, or month? The specifics of your business will determine what provider is right for you.
Here are some merchant services which can help you and your business begin accepting credit cards.
- Square (uses a “third party merchant account” shared with other users)
- Stripe (does not require a merchant account)
- Secure pay
Point of Sales Systems
Now you know the two primary methods of selling: in-store and online. You also know that to accept money online you need a merchant account and payment gateway set up. The final piece of the puzzle is understanding what a Point of Sales (POS) system is, and how it might work with — or against — your methods of accepting money online.
Traditionally, point of sale systems are used in physical stores for conducting transactions. This might look like a screen for entering in the sales data, a scanner or card reader for picking up credit card info, and software for processing it all.
With the growing popularity of ecommerce, many business owners want a POS system that will work in-store as well as online, so that all sales are integrated into one place. According to POS expert Shannon Vissers, three systems that work well for online as well as in-store purchases are Shopify, Bindo and Vend.
You can see that the method of accepting money that you chose for your business is going to have a significant impact. It will determine what your customers buy, whether they return, and how much you pay per each transaction. It will influence the way people talk about your business with friends. Will your customers be complaining about the headache of paying, or gushing about the smooth, seamless experience?
Choose the right methods of accepting payments by thinking about the specifics of your business. Do you sell in-store, online, or both? How much can you afford to pay for your processor? Research different payments processing services with this information in mind. When you find the right set up, your sales can increase as can your profit.