Introduction to Payment Processing
Depending on the type of business and customers’ preferences, merchants might consider offering different ways for customers to pay. General ecommerce businesses have faired well by offering customers credit and debit card payments along with ACH options. Different payment service solutions might be more desirable depending on the type of business, transaction history, and bank or payment processor concerns. Higher risk merchants have begun offering a wider range of customer choices, including e-check and cryptocurrency options.
The most widely accepted payment methods by e-commerce merchants today include:
With many different payment provider platforms and payment methods available, understanding the benefits of each can help merchants optimize their customer base. Businesses can offer new or improved products and services by offering customers additional options to pay. Our staff at Allied Payments can also help merchants with any questions or concerns regarding their business or offer additional payment services.
Different Payment Options Available
Understanding the different types of payments and how to utilize them for different business models can benefit merchants. Customers’ spending habits, the billing cycles of a business, and the goods sold can all play into finding the best payment processing bank service solution.
Payments today can be broken down into two categories. Both can offer merchants benefits and drawbacks, depending on the business using them. The most common forms of payments today include:
- Credit Card Processing
- Check Processing
Most merchants accept credit and debit cards today. As more and more people have opted to forgo cash and pay using a bank card, merchants must remain competitive with businesses and online stores. Accepting debit and credit card transactions has also been necessary for merchants looking to accept online payment through their ecommerce store.
In more and more instances, the option of e check has grown among merchants. While ACH is more desirable for some businesses because of the management options, ACH is not ideal for everyone. Customers have become more receptive to ACH and e Check, making these direct payments take a larger share of transactions. Recurring payments and higher risk products and services have relied heavily on check transaction services while becoming increasingly popular for general ecommerce sales.
Retail Payment and Online Payment Processing Methods
Today, there are several different ways merchants can process payments. Technology within the financial industry has taken over with new services to make purchasing fast and easy. With the internet’s growth, customers’ purchasing trends continue shifting to online marketplaces.
Merchants can process payments through various methods and services. For this reason, savvy merchants have added many available services to their list of acceptable payment types. Depending on their payment terminal, merchants can accept different customer payment types for debit and credit cards. The most common types include:
Still the most commonplace for payments, the retail storefront requires merchants to utilize a POS terminal. Businesses include professional office and restaurant merchant account solutions. Payment processors providing these services will set businesses up with an acquiring bank to manage card transactions. Payment cards can be accepted with a credit card machine, POS or card swiper depending on the merchant’s needs.
Viewed as one of the lowest-cost methods of opening a business, the exponential growth of the internet has made e-commerce the fastest-growing segment of the payment industry. New technologies allow merchants to integrate into multiple payment platforms with an easy-to-use checkout process. These payment gateways provide the highest levels of encryption security to thwart any potential fraud. Many offshore and high risk merchants use a high risk credit card processing service through an online merchant account that offers the same security but slightly higher transaction fees.
A once-popular method to pay was through a Mail Order or Telephone Order environment. Though common for certain types of businesses, many merchants have moved to an ecommerce environment to retain the customer base. Today’s businesses that accept MOTO payments can utilize the virtual terminal functions of a payment gateway integrated into an e-commerce website and securely send customer data processed to the issuing banks.
The use of eWallets by customers has become one of the fastest-growing methods for card payments. As more and more customers adopt these electronic payment methods, the need for merchants to accommodate these changing trends continues to grow. Companies such as PayPal and Stripe offer these payment processing systems ideal for startups and low-volume businesses. For most businesses, even some startups, these programs are more cost prohibited with high fees and increased restrictions on account funds.
Understanding Bank Processing Fees for Merchant Payments
Every transaction, whether a credit card, debit card, or check, will incur a fee. The customer’s bank card issuing bank or the merchant’s payment processor can assess most credit card processing fees. Depending on the payment processor or acquiring banks, payment processing, and various security fees can be charged in several ways.
While many fees charged by the customer’s card issuing bank can be straightforward, how these fees are presented to merchants can vary. Understanding the various fees and how they are billed to the merchant can be the difference between a fair agreement and an expensive mistake. The most common fees charged during a transaction include the following:
- Discount Fees:
Taken out of every settlement, the discount is the percentage of revenue taken during the transaction. These fees are determined by a combination of the transaction fees charged by the customer’s issuer bank and payment processor. For credit cards and debit cards, pricing models based on several factors can affect these rates. Similar to the payment card industry, a check being processed through a bank can incur transaction fees and discount fees as a percentage of the total transaction revenue.
- Transaction Fees:
The first swipe of the customer’s bank card incurs an authorization fee and has a fee for the issuing banks, while additional transactions, such as settlements, will be charged as a separate fee. High-volume businesses with high numbers of card transactions daily will want to verify the prices of these fees. Payment processors often charge only an authorization fee to reduce costs for the merchants.
- Statement Fees:
The payment processor or merchant acquirer bank is usually billed a monthly fee to keep their account open. Low-volume businesses may also require monthly minimum fees if they do not reach a certain monthly fee threshold. Merchants will want to check all monthly fees as it is common practice to waive statement fees and move the fee under another category.
- Gateway Fees:
Charged to online merchant accounts and virtual terminal merchants using the payment gateway of a payment processor. Most payment processing service providers charge a separate fee for using the gateway though some will incorporate fees into other charges. Payment gateways usually include transaction and monthly fees plus additional fees for any add-on payment processing services the merchant uses.
- Other Fees:
Merchant accounts can be full of different fees. Many of these fees will be based on a per-occurrence basis, such as batching services, chargebacks, retrievals, and customer service inquiries. Other monthly fees will be billed to merchants, varying from security to account management services. Yearly fees can also be charged; these include PCI Compliance or annual registration fees. While some yearly and monthly fees are not negotiable, some fees can be negotiable or removed as junk fee.
Processing Questions for Credit Card Payment and Payment Gateway Payment Processors
Merchants looking to open their first merchant account or want to change to a new payment processor or bank should ask prospective payment processors several questions before filling out an application. Depending on the merchant’s business type and whether their customers use credit or debit cards, a specific merchant services company might be required.
For general commerce businesses, almost any merchant services company can accommodate the needs of these businesses. Regardless of the business, whether it’s e-commerce, a restaurant, or a professional office, merchant services companies will be more than happy to accommodate these merchants. Most of these accounts have negotiable terms that can easily be shopped between providers. Merchants operating in higher-risk industries must spend more time finding a suitable payment service provider.
Asking the proper questions of a high-risk payment processor can search for a credit card processor less time-consuming. Many times merchants find out that the processor cannot accommodate a business type or their rates are astronomical after investing significant amounts of time with them. Instead of filling out numerous applications only to be declined or declined an application approval due to the terms, we have created a list of questions to ask when searching for a merchant services provider.
- Transaction Fees
Requesting a breakdown of fees from merchant services providers can help businesses compare costs. Existing businesses can also run a rate analysis to determine if and how much could be saved by using a merchant processor over another. A side-by-side comparison can help merchants determine the best option for their needs.
- Account Reserve
Higher-risk businesses with questionable sales or products or a limited business history might be approved for a merchant account with a reserve. In many instances, this can be negotiable and, over time, can be reduced or eliminated. Ask your merchant payment processor for more information on removing this fee.
- Set Up Fees
In certain situations, set-up fees are used for higher-risk businesses. Knowing the terms of the setup might be able to help merchants lower or eliminate these fees. Instead of paying upfront, some payment processors can allow merchants to pay this setup fee from their settlements.
- Chargeback Thresholds
Knowing the limits of the merchant account for chargebacks can save merchants time and money. Having funds held while navigating the management of merchant accounts can become costly and cumbersome for merchants trying to run a business. Understanding their limits can help merchants decide whether to pursue that payment processor or bank and their merchant account.
- Additional Fees
Ask all payment processors and acquiring banks about their fees, including 3rd party software or programs. This includes knowing the transaction and monthly fees for the payment gateway or any PCI Compliance/Fraud Protection security management software required by the payment processor. Costs on a payment processing account could be low because other requirements are billed separately.
The staff at Allied Payments will be more than happy to help merchants understand the important questions to ask banks and payment processors before beginning their payment processing services. A complete understanding of the available services helps banks, payment processors, and merchants have a successful and mutually beneficial relationship.
Establish Merchant Account Payment Services with a Payment Processor Today!
Merchants looking for quotes on their existing business or merchants starting a new business and needing a quote are encouraged to contact one of our team members. Whether e-commerce or retail payment processing services, Allied Payments is a capable payment processor with multiple system solutions for online and global credit and debit card transactions.
The payments processing staff at Allied Payments will be more than happy to help answer merchant questions or review any bank or payment processor accounts to determine if we can help reduce discount and transaction fees.