Payment Processing Software

Whether you own a small retail store or manage a large hotel chain, you have to make sure your products and services are paid for. To manage payments, businesses need to keep track of all transactions and tally them against invoices, as well as process digital payments. Enter payment processing software, which can help businesses save time and effort by automating related tasks.

We’ve prepared this guide to help you select the right payment processing tool for your business. Here is what we’ll cover:

• What is payment processing software?

• Why use payment processing software?

• What are the typical features of payment processing software?

• Who uses payment processing software?

• What are the potential issues with payment processing software?

• What is the cost of payment processing software?

• How do small and midsize businesses use payment processing software?

What is payment processing software?

Payment processing software enables businesses to process multiple payment types via the internet or traditional point of sale (POS) systems. Payment processing solutions include features such as payment processing, credit card authorization, reporting, receipt generation, and various administrative functions.

Payment processing tools are often used by accounting teams to ensure that payments are submitted on time and to avoid any payment errors. These solutions are closely related to eCommerce platforms, POS systems, accounting systems, and payment getaways.

Why use payment processing software?

Let's take a look at a few ways deploying payment processing software can benefit your business:

• Multiple payment options: Most payment processing solutions handle a variety of payments, from traditional credit and debit card payments to modern methods such as digital wallets and cryptocurrencies. Payment processing solutions also offer payment alternatives to better serve your customers such as direct bank transfers,  gift cards, and more. Customers want flexibility when it comes to how they pay for products or services, and payment processing tools provide that.

• Flexibility and scalability: Most payment processing solutions can grow with every stage of your business. Solo entrepreneurs and early-stage small businesses can use the same solutions as large enterprises, with little difference in overall functionality and price. This means that if you pick the right payment processor from the outset, you may not need to change tools as your business grows.

• Data security: As cybercrime grows ever more challenging, protecting customers’ sensitive payment data becomes all the more important. Payment processing solutions must meet high security standards and can encrypt and tokenize data to make it more secure.

Key questions to ask payment processing vendors before you buy:

• How is this payment processing tool going to benefit my business? What features are available?

• Is your payment processing solution secure enough to protect my customers’ data?

What are the typical features of payment processing software?

Before choosing a payment processing tool, it's important to understand the features typically offered by such tools. To help with your software selection process, here are the most common features:

• Billing and invoicing: Payment processing software enables you to accept and process multiple payment types including chip cards, tap cards, and mobile payments such as Apple Pay and Google Pay. These tools also allow you to create invoices manually by entering all relevant information or automatically at the end of a billing/checkout process.

• Data security and encryption: A payment processing solution with data security and encryption capabilities will help you keep both customer and merchant data safe from hackers and other threats.

• Payment processing: Payment processing lets you accept, record, and reconcile financial transactions. Depending on the solution you have selected, you can embed a payment processor on your website or manually process payments per transaction.

• Reporting/analytics: Reporting features help you view and keep track of all incoming and pending payments in a dashboard. You can get a consolidated view of your finances on a single screen and track any significant changes.

• Multiple payment methods: Most tools accept multiple payment types, including credit cards, mobile payments, and cryptocurrencies.

• Receipt generation: Create receipts for all business transactions, either as printed copies or digital ones to send via email and SMS.

• Discounts and promotions: Discount and promotion features allow you to provide vouchers, coupon codes, and other types of promotions to customers both online and in-store.

• Record invoices and transactions: Manage outgoing and incoming invoices and record any payments made or received. You can also track pending payments and receive notifications when payment is due.

Key questions to ask payment processing vendors before you buy:

• What features are included in your platform?

• Are there any special or additional features that you offer?

• Does your software allow multiple payment methods? If yes, what methods?

Who uses payment processing software?

• Brick-and-mortar businesses: These businesses require a payment processing tool to process credit cards and other non-cash payments. Either a standalone or integrated payment tool within a POS system is a necessity for such businesses.

• eCommerce businesses: eCommerce businesses need online payment processing software to streamline the checkout process. These businesses should choose solutions that easily integrate with their website and help group customers' transactions.

Key questions to ask payment processing vendors before you buy:

• Is your payment processing software a fit for my business type?

• Can this software easily integrate with my existing systems?

What are the potential issues with payment processing software?

• Fraud and security issues: Though payment processors come equipped with high security standards, one of the biggest challenges remains the potential for cyberattacks and fraud. This could take the form of data theft, phishing, or chargebacks. If you're investing in a payment processing solution that doesn’t have proper encryption, you’ll end up vulnerable to hackers.

Solution: Security issues can be addressed by data encryption, using PCI DSS compliant solutions, online payment auditing capabilities, anti-fraud tools, tokenization, multi-factor authentication methods, etc.

• Integration issues: A lack of technical knowledge to integrate payment processors with a website can become a roadblock. Since many small businesses process payments as an isolated component of their operations, ideally, this data should sync with existing solutions such as accounting, CRM, and invoicing software that your business already uses.

Solution: A payment processor that offers simple, seamless integration with existing systems.

Key questions to ask payment processing vendors before you buy:

• Is your tool equipped with sufficient security features?

• Does your tool easily integrate with my existing tools and website?

• Does your software support multiple payment platforms such as mobile payment, website payment, and social media payments?

What is the cost of payment processing software?

Although some vendors offer free payment processing software, most charge a pay-as-you-go (per transaction) fee, plus a fixed price for various cards. These solutions don’t charge any monthly or setup charges; you’ll often pay a per transaction fee as you process. Some advanced features include invoice support, local payment methods, data security and encryption, and real-time reporting.

We analyzed some sample payment processing solutions and have broken down these transaction-based rates into three tiers:

Transaction-based fee ranges (fees per transaction):*

• 0.5% - 3%

• 3% - 3.5%

• 3.5%+

*The included transaction fees were found on vendor websites on August 5, 2021. These ranges correspond to the 25th, 75th, and 100th percentiles of transaction fee information gathered from vendor websites of sample products and exclude freemium plans. For volume pricing, contact specific vendors.

Ultimately, transaction fees will depend on which payment processor you use. While some vendors will offer pricing that includes a processing fee as well as a payment method fee per transaction, others charge a flat, monthly fee with lower per-transaction fees. Some charge contract and incidental fees (for things such as chargebacks), so check with vendors before making a purchase decision.

Key questions to ask payment processing vendors before you buy:

• What is the pricing model of your product?

• Do you offer a free plan, trial, and/or demo?

How do small and midsize businesses use payment processing software?

There are many options on the market when it comes to payment processing solutions. Small and midsize businesses (SMBs) are using tools that offer varied payment options, including e-checks and credit cards. Businesses with subscription models often choose payment processors with features such as recurring and automatic payments. Retail SMBs use tools that easily integrate with billing and invoicing software as well as popular eCommerce tools. These retail stores often use the same processor for their in-store and online businesses.

SMBs are using payment processing solutions to collect more payments with less time, effort, and hassle. They use solutions that offer contactless payments options so customers can pay whatever way they want.

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