Payment processors are companies that take payments from merchants and then distribute them to customers.
They are also known as merchant service providers (MSP). There are two main types of payment processors: gateway or acquirer.
Gateway processing involves taking credit card information directly from a customer and sending it to a bank or other third party for authorization. Acquirers perform both functions.
There are several benefits to using a payment processor. For example, they can offer fraud protection, chargeback management, and dispute resolution services.
In addition, they can reduce the risk for merchants because they handle the transaction details. In other words, if you’re a business owner, you’re going to need to make sure that you are using one!
This is where we come in. In this article, not only are we going to be explaining to you what a payment processor is, but we are also going to be sharing with you some helpful guidance on how to pick the right provider for both your budget and your business.
So, whenever you’re ready, just read on!
What Is A Payment Processor?
A payment processor is an organization that processes transactions between businesses and their customers.
It’s basically a middleman who takes money from one side of the equation and then passes it along to the other side.
This may sound like a simple process, but there are many different ways in which a payment processor works.
For example, a payment processor could take money from a customer and then pass it along to a retailer. Or, it could take money from a retailer and then pass it along back to a customer.
Here are some examples of the various types of payment processors available:
ECommerce Payment Processors
If you’re an eCommerce business, you’ll likely want to use a payment processor that specializes in processing online payments.
These processors usually come with built-in tools that allow you to create custom shopping carts, set up recurring billing plans and more.
They also often include features that will help you reduce chargebacks (see below).
Gateway Payment Processors
If you’re just starting out, you may not yet have enough volume to justify spending on a dedicated gateway processor.
That said, if you already have a solid customer base and you want to accept payments from them, you could benefit from using a gateway payment processor.
The good news is that gateway processors tend to be cheaper than their dedicated counterparts.
B2C Payment Processors
If your business focuses on consumer sales, then a B2C payment processor is probably right for you. These processors are typically used by companies that sell physical products or provide services to consumers. Examples include PayPal, Google Checkout, and Stripe.
B2B Payment Processors
If you’re a business that primarily deals with other businesses, you’ll probably want to use a B2B payment processor.
These processors are typically designed for large enterprises that process hundreds of thousands of dollars per month. Some popular options include SagePay, Xoom, and Worldpay.
Why Use A Payment Processor?
It’s important to use a payment processor when accepting online payments. Not only does it help prevent fraud, but it also helps protect your business by reducing risk.
If someone were to steal your credit card numbers, they wouldn’t have access to all of your sensitive data.
And, even if they did manage to get hold of your personal information, they would still need to know where to send the money.
It’s also worth noting that using a payment processor makes things easier for you and your customers. You don’t have to worry about remembering any complicated passwords or dealing with technical issues.
Plus, you won’t have to spend time worrying about security breaches or managing your own infrastructure.
So, now that you understand why you should consider using a payment processor, let’s move onto the next step: choosing the best one for you.
Choosing Your Payment Processor Provider
There are many different payment processors out there, so it can be difficult to know which ones are best suited to your needs.
Fortunately, we’ve done the hard work for you. We’ve put together this guide to show you how to find the perfect payment processor for your business.
Step 1: Decide What Type Of Business You Have
Before you start looking into payment processors, you’ll first need to decide what type of business you’re running. Are you selling products online? Do you operate a brick-and-mortar store?
Or maybe you sell services, such as web design or SEO services. Whatever your business model, you’ll need to make sure that you select a payment processor that works well within it.
For example, if you run a website that sells physical goods, you may not want to use a gateway processor like PayPal.
Instead, you’d probably prefer to use a service like Amazon Payments. On the other hand, if you offer digital downloads, then you might want to look at a gateway processor like Square.
Step 2: Find Out Which Types Of Payment Processors Work Best With Different Business Models
Once you know what kind of business you’re operating, you’ll need to research whether certain types of payment processors work better than others.
For example, some payment processors are designed specifically for eCommerce businesses while others are geared towards B2B transactions.
Step 3: Consider What Your Budget Out
Next, you’ll need to think about how much you can afford to pay each month.
This includes both the fees that you’ll pay to the processor and any monthly charges that you incur on your behalf (like merchant account processing).
The more expensive the processor is, the more services that it is likely to offer.
However, there are a variety of affordable options out there on the market, too! So, before you commit to anything, take a close look at their pricing plans.
There we have it! After taking the time to read through this guide, we’re hoping that you’re now well aware of what a payment processor is, and why you need it for your business.
In addition, now that you’ve got an idea of which types of payment processors work best with different types of businesses, you can start researching providers based on those criteria.
You should also think about how much money you expect to spend on payment processors before you commit.
Thank you for reading! For more, checkout our resource guides on credit card processing.
Paul Martinez is the founder of EcomSidekick.com. He is an expert in the areas of finance, real estate, eCommerce, traffic and conversion.
Join him on EcomSidekick.com to learn how to improve your financial life and excel in these areas. Before starting this media site, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.