How To Pick a Payment Processor

It’s a huge decision for any business, but it can be especially crucial for a small one, says Dan Leberman. Here are some important considerations to make the job a little easier.

Even if you have coding experience, tackling a heavy-lifting payments integration carries substantial opportunity cost. And if you aren’t as good as you think you are … well, a faulty integration can drive away customers.

Every business owner needs to process customer payments. Obviously. Despite the simplicity of this need, selecting a payment processor can seem very confusing. How can we overcome the confusion?

Well, here’s a start: Identify and prioritize the most important factors in the selection. Based on PayPal’s own best practices, here are top considerations for every business owner in picking a payments processor:

Get the full range of payment options via one provider

Today’s customers expect choices. Card processing alone may not be enough to drive conversion of all of your potential customers, as some remain reluctant to directly give card info online. Offering several trustworthy payment options like digital wallets (that don’t require the exchange of financial information) in addition to credit cards helps you attract more customers, reduce cart abandonment, and ultimately increase sales.

You should give customers a choice in how they pay, but with as much operational ease as possible. To balance ease of management and customer choice, consider an all-in-one payment provider that gives you both card processing and ready-built digital-wallet acceptance. This one-stop-shop model will make it easier for you to get up and running quickly, and make it easier for you to deal with problems over time.

Ensure quick access to your money

Businesses require the fastest possible settlement of customer accounts so they can get access to their cash to fund ongoing business operations and complete proper accounting. In the early days of online payments, holds on proceeds from online sales, usually for security reasons, were more common. But today, select payment processors are minimizing holds and reserves, and some are offering next-day settlement, even for smaller businesses.

Be sure to look for a payment processor that commits to deliver the quickest possible access to your money.

Ensure easy setup and ongoing, payments-specific customer support

Depending on your business setup, initiating payment processing can require technical knowledge. Even if you have coding experience, tackling a heavy-lifting payments integration carries substantial opportunity cost as you take focus away from driving sales and running the business. And if you aren’t as good as you think you are … well, a faulty integration can drive away customers.

To avoid this risk, find a payment processor that offers plug-and-play service with your e-commerce platforms or in-house/third-party development partners. Make sure the payments processor is easy to get up and running quickly. But, also recognize that ongoing, specialized payments support will be valuable as you grow. The complexity of the back-end payments engine and the money at stake mean you should pick a payments processor that can deliver reliable support.

Protect your business from fraud

Despite continuing improvements in anti-hacker technology, fraudsters can still beat the system with stolen financial information. Other customer fraud still exists, too. You may receive a payment, ship an item, and then get a complaint from the customer claiming that the package never arrived and requesting a refund when, in fact, they did receive the package.

While fraud likely can’t ever be eliminated completely, the incidence and cost of fraud can be minimized. Prioritize working with a payments processor that offers both world-class fraud-management tools and resolution services that have a reputation for efficiency and fairness.

Protect your customers from fraud

Theft of data such as credit card information and personal identity information is big business for cybercriminals and other fraudsters. As you evaluate vendors, look for those with proven reputations for security and that do not share customer financial information at the moment of transaction.

Comply with the Payment Card Industry Data-Security Standard (PCI DSS)

The large credit card networks have set baseline rules to ensure a minimum level of data security for transactions on their networks. The networks will periodically ask merchants for proof of compliance, which leads many merchants to spend a lot of time and money completing compliance work. Working with a reputable payment processor that keeps your customers’ data secure can reduce your compliance workload.

Understand actual processing costs—not just lowest “show rates”

Finding a good price seems simple enough—until you notice all the asterisks next to the rates you often see. Those asterisks lead to fine print that reveals dramatically higher processing fees on many of the most common types of transactions, including different types of credit or debit cards.

These rate surprises won’t just cut into your expected margins, they can turn a profitable transaction into an unprofitable one. So, how can you better understand and control your total processing fees? To most easily understand and predict your expected cost, consider working with a processor that offers flat or blended rates, charging you one rate for any type of transaction, instead of bucketing transactions into various categories.

The biggest potential driver of cost control is to call customer attention to lower-cost payment types and to encourage them to go that route for payment. To do this, you may want to keep your transaction pricing unblended and drive customers to the lowest-cost options. But doing this smartly can be tricky: You will want to understand the breakdown of your customers’ usage of different payment tools, and then project your total fees based on the volume of cost for each transaction type.

Finally, in either transaction-pricing model, understand other fees that processors may charge, such as cancellation, withdrawal, and batch-processing fees.

Choosing a payment processor for your online business is a big decision, so don’t act without consideration. Follow these top criteria to make sure you pick a great partner.

—Dan Leberman is vice president for PayPal Inc.’s North American online small and medium business.