Doing business online has become increasingly common–even for services that are 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 ACH transfers.
Key Points
• Accepting online payments can help your business grow and provide customers with an easy 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 provide 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. Understand these fees when choosing a provider and to get a handle on the total cost to accept 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 options 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-sales system you use at a ground location, it may also offer options for online processing.
You will owe a per transaction fee on credit card purchases of about 3%.
Mobile Payment
Mobile payment apps are a fast and easy way for customers to pay, as they don’t require them 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 commonly make it very easy to accept mobile payments, often simply requiring that you 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. In contrast to credit card payments, payers are responsible for ACH transfer fees.
Make Payments Easier With Online Invoicing
You can make it easy 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 who wish to start accepting payments immediately. They work by aggregating multiple businesses under a single account and providing sub accounts for each.
If you require more customization, you may 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 gateways, 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 customer experience.
There are several factors that 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 card 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 it should 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 that allow customers to check-out easily. Difficult 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 required banking and business information.
Next, integrate the platform into your website. You may use an e-commerce platform that makes this relatively easy. If you have a custom site, your developer may integrate the payment gateway using provided instructions.
Be sure your website complies with PCI DSS guidelines to help ensure that customers data is safe. And perform test transactions for various scenarios to ensure 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 every time you process a transaction, such as a sale, decline or a 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 assessment. Finally, the card issuer will charge a fee known as an interchange.
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. Choosing 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.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
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.
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 secure. ACH payments go through a clearing house that keeps customer data safe. And payment service providers comply with 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 of about 3% per transaction.
What security measures do I need for online payments?
Ensure your payment systems are secure by making sure payment 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
SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
SOSMB-Q424-104