Payment Processing 101: Understanding How To Pick The Right Provider

Every online business regardless of its size and location will need the service of a payment processor to execute transactions and create happy customers. Entrepreneurs have come to understand that the best payment gateways are those that work seamlessly behind the scenes at a competitive price.

What Is A Payment Processor And Payment Gateway?

A payment processor refers to a company that facilitates debit and credit card transactions on behalf of an e-commerce owner. The fees are for the most part a percentage of each transaction in addition to a small fixed per-transaction fee. Other additional costs could include a monthly subscription fee, annual compliance fees, among others.

Every business with no exception that transacts online, on the phone, or at a physical retail location will need the services of a payment processor. Fortunately, the space has exploded over the years with names like Square and PayPal posing a new threat to traditional banks. As such, business owners are more likely to score a great deal.

Payment processors shouldn’t be confused with a payment gateway. Payment gateway refers to the technology that establishes a connection between the e-commerce company and the credit or debit card processing company.

This connection is responsible for encrypting data, verifying a credit or debit cardholder has the necessary authorization to use the card and ensuring all private information remains secure.

Many payment processors double as a payment gateway provider, giving the e-commerce owner access to an all-in-one platform. The benefits of bundling both important aspects of a transaction include potentially lower fees and eliminating potential compatibility issues.

How To Choose A Payment Processor

The process of selecting a payment processor might seem like a daunting task but in reality, it shouldn’t be more complicated than selecting a cell phone provider or picking an internet plan.

One of the more overlooked tips in selecting a payment processor is understanding that everyone’s own business is unique. What works for one e-commerce owner may not work for another due to the sales composition.

Consider for example, a business owner that oversees a small number of transactions but at a very high price point. It is possible that their payment processor specifically caters to low-volume businesses. So this processor may not be an ideal fit for another business that is built on large volume at very thin margins.

The same logic holds true for geographic regions. An e-commerce business in France that sells apparel and accessories to customers across Europe would likely use a different processor compared to an online company that is more domestically focused, say a fresh food delivery company.

It would be very easy for a new business owner to find all the costs and other relevant information on a payment processor’s website. Most if not every company would be happy and eager for the opportunity for a member of their sales team to reach out to a new business owner via phone or chat. 

How Payment Processors Differ

Payment processors offer the same essential service of running the back-end transaction portion of a business. What separates payment processors from each other mostly relates to the cost structure.

Stripe, a relatively new and popular payment processing platform, is a favourite among European business owners who sell their products worldwide. Transaction fees for all European cards are 1.4 percent of the total amount plus a fixed fee of £0.20. By contrast, non-European cards are charged 2.9% plus a fixed fee of £0.20.

Prices naturally vary by country and region but the above is an ideal example to show how Stripe strives to stand out from the competition in a particular region. In fact, Stripe offers North American customers the ability to create custom packages that include potential volume discounts, multi-product discounts, country-specific rates, and other benefits.

European entrepreneurs that truly understand that their core customer base is within Europe would be hard-pressed to find a better deal in the payment processor universe.

The Math Is Easy To Calculate

Business owners both new and old should always be examining the many options available to satisfy their changing payment processing needs. The math should be straightforward to calculate and will determine if money can be saved by switching payment providers.

Business owners will receive detailed and easy to understand invoices or statements from their current processor that should break down all the fees paid in a given period. Armed with this information, all a business owner needs to do is re-calculate the numbers with the new rates from a competing firm.

It is also important to factor in potential termination fees with the old processor, one-time setup fees with a new provider, and any other costs that would be relevant to making a financial decision.

Conclusion: Do Your Homework

Picking the best payment processor for your business is a decision that only you can make. It might be tempting to simply “go with the crowd” and sign up with one of the providers that dominates financial media headlines.

But this could prove to be a costly mistake. The payment processor landscape is full of competition with many companies thriving to provide rock-bottom rates. Some may even be willing to offer packages or discounts that aren’t advertised to the public.

Ask the company. You might be surprised at how easy the process is.