The World Bank reports that in 2015 15 trillion dollars was spent electronically worldwide compared to $19 trillion in cash and checks. Electronic payments account for a significant slice of customer transactions. To accept electronic deposits, like credit cards, debit cards, and mobile payments a business owner must work with a payment service provider (PSP).
Because working with a PSP is necessary, all business owners need to understand the ins and outs of payment processing. By learning what a PSP is, why it is required, and what it can offer, you will be better able to find one that will help you grow your business.
What Is A Payment Services Provider?
Payment service providers are businesses in themselves. Their sole purpose is to help merchants process payments from customers. Also sometimes called merchant service providers, these businesses connect all the dots so that business owners can accept varying forms of payment.
Because they conduct bulk transactions, due to working with many businesses, they usually can make transfers for less than if you were to transfer the money to an individual. PSPs also have connections to many different banks. Some can help merchants facilitate monthly membership fees or other specific payment situations.
Why Is It Necessary?
When you think about it, the need for this connection-forming middleman is clear. Would a business owner really want to take down electronic payment information, contact the bank that the information is connected to, and then transfer a payment into his or her account?
It sounds like a complete headache, doesn’t it? And that headache might not even take into account the fact that the electronic payment information might be international, and the bank you need to contact is across the globe or the possibility that the information is fraudulent.
The many varieties of electronic payments create a situation in which not only would it be a headache for the shop owner, but it would be impossible to manage on top of the duties of running a business. The demand for this service gave birth to many PSPs, who promise to handle the whole process for the merchants that they work with.
The payment process requires two components, a merchant account, and a payment gateway or “gateway”. The merchant account is a place for money to enter into once money is transferred. Some PSPs use joint merchant accounts so that the business owner doesn’t have to worry about setting one up.
The second component is a gateway. Every online transaction takes place on a page designed to accept card information. This page is a gateway, or portal, for the payment to travel through. Sometimes businesses will combine merchant accounts with gateways.
Popular Payment Service Providers
There are several well-known merchant services. They are popular for a reason. Some services, like PayPal, are quick and straightforward to integrate. Others can be customized for a unique buyer experience. Here is a list of some of the most well-known PSPs, and a few highlights of each.
Many businesses start out using a simple payment service provider that is well suited to a small number of transactions, such as Paypal. This method is perfect for start-ups because it doesn’t cost anything to initiate. Anyone can sign up for a Paypal business account, which means that business owners don’t have to worry about applying for a merchant account from a bank.
An additional facet that makes this service convenient and easy to use is that it comes with a gateway. Paypal combines these elements into one easy-to-use package that is easy to manage through the paypal login page.
Instead of finding a merchant account and gateway that are compatible, the business owner signs up for one service. The two components will work well together because they are coming from one provider.
Stripe is a PSP built with developers in mind. Though it is not quite as simple and beginner-friendly as Paypal, it is an excellent product if you or someone on your team has web development experience. This company is known for offering a high quality service. They take fraud protection seriously, and clients can use 3D secure technology with payments.
One of the highlights of this company is that they are built to accept more than 135 currencies, as well as Apple Pay, international credit cards, Bitcoin, Alipay, WeChat Pay, and ACH Debits. This impressive array of payment options could very well encourage a potential customer to buy.
Skrill is a PSP that promises to allow merchants to control all ecommerce with one easy-to-use account. A Skrill account can be set up very quickly.
Despite the simplicity and ease of use, there have been some complaints lodged about Skrill, namely regarding the withholding of funds. The Better Business Bureau gave this company a rating of D minus in 2016. However, the company remains active with many loyal users. One perk is that cross-border transactions are free.
The Square platform was one of the first PSPs to offer processing services without a merchant account. They do this by sending all payments to a shared merchant account and then doling the money out to each business owner from there.
Square is known for their swipe devices which can be attached to phones or tablets. The Square card reading device is cheap, easy to use, and completely portable. It gives a business owner card-collecting capabilities without an elaborate scanning system.
Many Options To Choose From
As you can see, there are many payment services to choose from. We just discussed some of the most popular ones, like Paypal and Square. There are other providers as well, such as Payline and Epayonline. The list goes on! This can make choosing the right one a problem, due to the massive amounts of information that you have to sift through.
The best way to begin the selection process is to define your needs.Your unique needs will point you in the direction of the processing system that will help you succeed. Do you need a processing system that is easy to set up? Paypal might be a great fit.
Do you hope to be able to accept payments on the go, such as at book signings or craft fairs? If so, consider a payment service provider that works with a mobile device. Square is one option, but there are a few more to add to the list. These include:
- Intuit GoPayment
- PayPal Here
These services have the added benefit of potentially low start-up costs because the business owner might already own a mobile device to connect with. Be sure to consider whether you will be traveling to places with wifi if you chose this method. Some providers work by sending information to the cloud to authorize payments.
Find The Right PSP But Know That Your Needs Will Change
As your business grows, your processing needs may change. Initially, a per-transaction fee might be the wisest choice because you are selling a minimal number of items per month. As your reputation and inventory grow, you might need to transition to a PSP that offers a flat rate, so that you can save money.
Re-evaluate your payment system once a year, to see if a change is necessary. Before you change, providers think through the transition so that it can go smoothly. Make plans to handle any returns or issues that may occur through the old system once you change over to the new one. Ideally, the new provider will help you make the switch and handle any glitches that arise.
Consider Your Audience
When you search for the right payment processor, you need to consider your target audience. Every business has a select group of people that are interested in the products and services on offer. This community has defined spending patterns. These patterns are significant because they will help you determine what PSP to partner with.
If your target audience is very multinational, you will need to have a way to accept many forms of currency. A provider of Stripe might be a good choice. You should compare the currency exchange rates of your top contenders to see which one will be most cost-effective.
Additional Considerations: Bookkeeping and Reports
Before you start comparing potential providers, you need to think about a few other facets of the payment process. One is the reporting capabilities of the provider.
Will all of your sales data be reported to you, the business owner, in an easy to understand manner? Will you be able to generate custom reports on the data that interests you? Investigate the reporting services that the potential provider offers with accounting in mind.
PSPs are necessary for businesses that want to process electronic payments. Since electronic payments are so popular, it would be unwise to ignore this stream of income. Find the right PSP by sifting through the popular companies and then comparing their offerings to your unique business needs.