Payments 101: What to know before choosing a payment processor

payment-processor

-Payment processors are increasingly necessary in a world transitioning to online and cashless payments, but not every one of them will fit your business needs.

-Some must-haves to consider when choosing a payment processor are compliance with security requirements and secure hardware to use with several payment methods.

-Assessing your context is important: Who are your customers? What payment methods do they prefer? Do you have an e-commerce business or only a physical store?

-This guide will help you go through all the aspects you should consider before buying services and products that payment processors offer.

As e-commerce continues growing in Latin America, and as more people leave cash as a payment method behind, payment processors are rising as a necessary intermediary. These are companies that handle transactions, allowing businesses of diverse sizes to process card payments through the Internet or traditional point-of-sale (POS) interfaces. They communicate information from the customer’s debit or credit card to the merchant’s and the customer’s bank accounts. 

This information exchange verifies if the customer’s card has enough funds in the bank to complete the transaction. Then the processor allows the transfer of the funds, completing thus the payment. While a business may have an online store, choosing a payment processor is complex, and different needs may require tailored products. This article will go through each of the factors that a business needs to consider when selecting a payment processor.

When taking credit and debit card payments, you’re storing sensitive customer information, so your system must be secure. To guarantee data protection, check if the payment processor you consider is PCI-certified, which means that a certified security assessor has audited it for compliance with the Payment Card Industry Data Security Standard. Another critical aspect of transaction security is fraud protection, and some payment processors have built-in tools to help avoid fraud.

Each payment processor has different pricing models that can be more or less convenient depending on the type of business you own. Several fees can be associated, such as chargeback fees, transaction fees, leasing fees for using hardware equipment, etc. Also, some processors charge extra fees when the system reveals that the customer’s card account does not have sufficient funds for the payment. Check the costs of each payment processor thoroughly, as sometimes they offer tailored prices for companies with unique business models or large payment volumes.

Also, if you are already using other software to manage your business, you would probably want your payment processor to be integrated or be compatible with other technologies you use. Some payment processors offer API-based integrations with the user interfaces you already have so that it is easier to give customers a seamless experience through all channels. To simplify the accounting and taxation of your business, integrated payment processors can automatically create a record with every purchase. This feature can help you have more transparent data for paying taxes.

When choosing a payment processor, you must also identify the context of your business: in which country is it located? Is it a rural or urban area? Is it an e-commerce business or a physical store? Who are your customers?  This is because if you have a physical store in a town where credit cards aren’t widely used, maybe the costs of using a payment processor aren’t justified if the returns are low. But if you have an online platform or a store in an urban area, then using a payment processor is necessary. 

Payment habits change in every culture, and the payment processor you choose needs to adapt to your customers’ context. Different cards, for example, have additional risks and fees, and some payment processors may accept Visa and Mastercard but not American Express. Some payment processors even accept cash payments, understanding that people are more prone to paying in cash in some markets. If you have an international business or want to scale your company to a global level where you sell to customers from different countries, choose a payment processor that does not charge costly service fees or unfavorable currency exchanges. Also, be sure that the processor accepts several currencies and offers a unified API for credit and debit cards, e-wallets, and more. 

Some PSP, or payment service providers, can be integrated through plug-ins and APIs, but you may want to pass on this feature depending on what type of client you receive. If you have a mature audience who is not that familiar with online payment gateways, they might feel more secure paying through a virtual POS that will redirect them to the bank’s payment gateway. All in all, it is essential to simplify the payment process while making it as reliable as possible for your potential customers. 

If your business has a physical store, you will probably need hardware equipment to accept card payments easier. Check if the POS hardware has the following characteristics: Does it accept chip cards and contactless payment methods like Apple Pay and Google Pay? Does it have point-to-point encryption? Can you customize your welcome screens and build a seamless shopping experience?

A payment processor should be easy to use and convenient for both the customer and the merchant. If there is an error in the system, your payment processor should be ready to respond and solve complex transactional issues. The customer user experience should be positive, and overlooking this aspect could be detrimental to your brand. A payment processor that allows you to customize your in-store checkout is a plus. If they offer a mobile software development kit, you can accept payments on an app, making your customers’ experience even more seamless.

Regardless of the processor you choose, incorporating it into your business will be more and more necessary in the future. People are adopting payment methods such as cards and contactless options in more significant percentages and purchasing items through smartphones and mobile commerce. For example, according to Visa, contactless payments in Latin America and the Caribbean doubled in 2021, and according to a study conducted by Mastercard, in 2020, 62% of consumers used less cash after Covid-19.

Requesting a bank or wire transfer is complicated and time-consuming, and customers demand more straightforward and reliable ways to pay. Payment processors provide a competitive advantage by adding a layer of security and a seamless experience for customers who can choose from various payment options. Still, not every payment processor will fit your needs, and this guide can help you ask the right questions when selecting one for your business.

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