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Doing business online has become increasingly common, even for services that are provided in person. Accepting online payments is an important way to increase your market reach and grow your business.
There are several ways to accept payments online, including with credit cards, mobile payments, and Automated Clearing House (ACH) transfers.
Key Points
• Accepting online payments can help your business grow and provide customers with a convenient way to pay.
• There are several options for accepting payment online, including through a payment service provider, mobile payment methods, and ACH transfer.
• If you decide to use a payment service provider, choose a company that meets your needs and budget, and offers secure services to protect your clients’ data.
• A merchant account is a bank account that holds payments from customer credit cards and transfers this money to your business account.
• Payment service providers charge fees on every transaction they facilitate. Know what these fees are when choosing a provider to understand the total cost of accepting payments online.
Typical Online Payment Options
Whether you’re an established business or a startup, there is a lot you have to think about, from getting the equipment you need to operate to hiring employees to getting your goods and services into the hands of your customers. Increasingly, this last item requires a way to collect payments online. There are three common ways you can do so, and the option that’s right for you will depend on your business and client needs.
Online Payment Service Provider
If you plan to accept credit cards for goods and services online, you’ll typically need to engage a payment service provider. You can use third-party processors, such as PayPal or Stripe, or there may be a processor built into the platform you use to run your website. If you already have a point-of-sale system you use at a ground location, it may also offer options for online processing.
You will be charged a per-transaction fee of 1.5%-3.5% on credit card purchases.
Mobile Payment
Mobile payment apps are a fast and convenient way for customers to pay, as they don’t require customers to manually input credit card information. To accept mobile payments, you’ll need to build them into your site using developer guidelines for each. That said, due to the popularity of this option, e-commerce platforms typically make it easy for businesses to accept mobile payments, often simply requiring that they activate the option.
ACH Transfer
The Automated Clearing House (ACH) network allows individuals and businesses to move money electronically between banks. For a customer to make a payment, all they typically need is your bank routing number and account number. Some banks may require additional verification in the form of a voided check or an authorization from your bank. As with credit card payments, the business is responsible for ACH transfer fees, not the customer.
Make Payments Easier With Online Invoicing
You can make it easier for clients to pay by using online invoicing services that integrate payment options into your electronic invoice. These services usually allow you to choose what payment methods you will accept.
Keeping track of invoicing can also help you if you need to tap other business resources, such as invoice financing.
Setting Up a Merchant Account
A merchant account is a bank account that allows your business to accept credit cards. The account holds funds from card payments and then deposits them into your business bank account where you will have access to them. Payment service providers offer turnkey merchant account solutions for businesses that wish to start accepting payments immediately. They work by aggregating multiple businesses under a single account and providing subaccounts for each.
If you require more customization, you might consider an individual merchant account. Individual accounts may also be offered through point-of-sales systems companies and payment processing companies.
Choosing the Right Payment Gateway
In addition to other services, payment service providers will supply a payment gateway, which acts as an intermediary between your customers shopping online, their credit cards, and your bank. Choosing the right provider is important, as it affects how your business operates, including in customer experience.
There are several factors you may want to consider when choosing a system.
• Payment method: The system you choose should support the payment method you wish to use, such as credit and debit cards or digital wallets. If you have customers outside the U.S., be sure your platform can support international transactions.
• Fees: Most payment gateways will charge a transaction fee. This will vary by company, and some companies may offer a tiered fee system based on transaction volume.
• Security: Make sure your payment gateway protects sensitive data. It should comply with the Payment Card Industry Data Security Standard (PCI DSS) and use security measures such as encryption and tokenization. Some will also offer tools to detect fraud.
• Customer experience: Look for platforms that have a simple-to-use customer interface allowing customers to check out easily. Complex interfaces may lead customers to abandon purchases.
Integration Steps and Technical Requirements
Once you’ve chosen a payment gateway provider, the first step is to set up an account and provide all the required banking and business information.
Next, integrate the platform into your website. You may use an e-commerce platform to facilitate the process. If you have a custom site, your developer may integrate the payment gateway using provided instructions.
Check that your website complies with PCI DSS guidelines to help ensure that customers’ data is safe. Perform test transactions for various scenarios to make sure the system is working properly.
Payment Processing Fees and Costs
Every time you make a payment transaction, you will likely owe several processing fees. Your payment processor will charge an authorization fee with each transaction, such as a sale, decline, or return. Your merchant bank will charge a fee, and the customer’s credit card association — such as Visa or Mastercard — will charge a fee known as an assessment fee. Finally, the card issuer will charge an interchange fee.
Get to know these fees to understand the full cost of processing transactions, especially as you put together your regular traditional income statement. Payment process fees are generally considered to be tax deductible by the IRS for small business taxes.
Recommended: 6-Step Guide to Getting a Small Business Loan
The Takeaway
The ability to accept payments online can be key to introducing your business to new markets and helping it grow. Having the right payment method is important, and if you choose to use a payment service provider, find one that meets your business needs and budget.
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FAQ
How do I start accepting payments online for my business?
You can start accepting payments online through a payment service provider, link mobile payment methods, or through ACH transfers. This can help your business grow and provide customers with a convenient way to pay.
What’s the difference between a payment gateway and a merchant account?
A payment gateway is like a digital point-of-sale terminal. It validates credit card information, processes the payment, and confirms the transaction. A merchant account is required to hold a customer’s credit card payment and transfer it to your business account.
Which online payment method is most secure?
Online payment methods are typically secure. ACH payments, for instance, go through a clearing house that keeps customer data safe. And payment service providers comply with Payment Card Industry Data Security Standard (PCI DSS) guidelines to protect customer information.
How much does it cost to accept online payments?
Online payment service providers make money by charging transaction fees. You can expect to pay 1.5%-3.5% per transaction.
What security measures do I need for online payments?
You can help ensure your payment systems are secure by checking that service providers comply with the Payment Card Industry Data Security Standard (PCI DSS) and use security measures such as encryption and tokenization.
Photo credit: iStock/miniseries
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