COMMENTARY: How to Pick a Payment-Processing Provider the Smart Way

By Dan Leberman

Every business owner needs to process customer payments, but selecting a payment processor can be very confusing. To make the selection simpler, get started by identifying and prioritizing the most important factors for your business. Based on PayPal’s own best practices, here are top considerations for every business owner.

Get the full range of payment options via one provider: 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 (those that don’t require exchange of financial data), 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 deal with problems over time.

Ensure quick access to your money: In the early days of online payments, “holds” on proceeds from online sales 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 understand your options for fast and complete settlement with any processor, and look for a payment processor that commits to delivering the quickest possible access to your money.

Make it easy on yourself—ensure easy setup and ongoing, payments-specific customer support: 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 existing business platform providers (e.g., e-commerce platforms or in-house/third-party development partners), with ongoing, specialized payments support that will be valuable as you grow and make changes to your business.

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, incidence and cost of fraud can be minimized. Work with a payments processor that offers both world-class fraud-management tools and resolution services.

Protect your customers from fraud: Customer data theft from retailers, such as credit card information and personal identity information, is big business for cybercriminals and other fraudsters. As you evaluate payment-processing vendors, look for those with proven reputations for security, including those that offer digital-wallet payment products that do not share customer financial information at the moment of transaction.

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. 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 can turn a profitable transaction into an unprofitable one.

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. 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 in your customers’ usage of different payment tools, and then project your total fees based on the volume of cost for each transaction type.

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 hastily. Follow these and other tips outlined in this white paper to ensure you pick a great partner.

Dan Leberman is vice president for PayPal Inc.’s North American Online Small & Medium Business.