Payment Processing for Small Business: What You Need To Know To Get Started

Payment processing is the series of steps involved in a customer sending money to a business using a credit card, debit card, or other electronic payment method. This process involves a rapid, secure exchange of information between the customer's accounts and the business's merchant account to move money from one to the other. It's a convenient, safe way for customers to quickly pay businesses for their goods and services and be on their way.

Not only does payment processing improve the customer experience and payment security, but it facilitates faster deposits into your accounts, giving your business more positive and manageable cash flow.

There are two core types of payment processing systems:

• Merchant accounts: The traditional way businesses accept credit card payments, a merchant account is basically a bank account used to deposit electronic payments from customers.
• Payment service providers (PSPs): A PSP is an alternative to merchant accounts that facilitates payments into the seller's preferred account instead of a dedicated merchant account. Rather than get a specific merchant ID with a bank, you get a license to process payments through the PSP's merchant account. Some common PSPs are PayPal, Stripe, and Square.

Processing customer payments requires a few individual components to support seamless transactions. The primary components of payment processing services are:

• Payment gateways: Gateways may be a physical device, like the tap pad you see at the grocery store, or a virtual terminal that vets electronic payment information to support both in-person and online transactions.
• Merchant accounts: A merchant account is the bank account that accepts funds, or in the case of a PSP, facilitates payments out to your preferred account.
• Payment processors: The processor itself securely analyzes all information to ensure a safe transaction and moves money from one account to another.

There are many small business payment processing solutions on the market, and it can be difficult to determine which one is best for your needs. If you don't know what to ask a payment processor, these guidelines can help you get started:

• Transaction fees: Most payment processors charge a fee on every transaction based on interchange rates. These fees can add up, making some small business payment options worse than others.
• Pricing structure: While transaction fees are usually standard, different companies may assess a subscription fee, an online payment fee, equipment fees, and more. Moreover, some may require long-term contracts, reducing your company's flexibility.
• Security measures: Any payment processor should meet PCI compliance standards to protect cardholder data and be able to explain how they mitigate fraud threats.
• User reviews: Finally, user testimonials are a great way to understand how other small businesses have enjoyed working with a particular processor.