6 common mistakes to avoid when choosing a payment service provider
A payment service provider, sometimes referred to as merchant service provider, is a third-party company that helps merchants accept different types of payments from consumers or other businesses. Payment service providers enable merchants to accept a myriad of payment methods – from credit and debit card payments to real-time bank transfers – by connecting them to a broader base of financial institutions. Many payment service providers provide a merchant account as well as a payment gateway for businesses to collect and manage their payments.
Now that we know what a payment service provider does for a merchant, let us uncover some of the common oversights businesses make when choosing a payment service provider to process their payment transactions. Not all payment processors are created equal, and learning to identify these mistakes can increase your profitability, smoothen your payment operations and broaden your customer reach.
1. Missing the fine print on rates and payment processing fees
When considering your options for a payment service provider, remember that a lower rate does not necessarily mean a lower overall cost. Some payment processors can have steep processing fees or variable rates which make it hard to determine how much you will be paying in the end.For instance, some credit card processors charge higher rates for so-called non-qualified cards. Examples include rewards and corporate cards. These cards are popular with customers as they earn them rewards points or cashback incentives, so you can expect many of your clients to be using these cards frequently. It is an unpleasant surprise when you realise that a payment service provider comes with a higher rate for these cards. To avoid any rude shocks or paying more than you have to, find a payment processor with transparent fees.
2. Consenting to volume commitments
Another common mistake often made by merchants is agreeing to ‘volume clauses’ in the contract with the credit card processor. This clause may typically tie the relevant fees chargeable to a minimum monthly number of transactions or a maximum transaction amount. If you agree to the latter, you will need to pay higher fees for transactions which exceed a specific threshold limit. In other words, you may be penalised when your sales figures increase.Similarly, consenting to meet a minimum number of transactions each month will put you under unnecessary pressure to achieve this target, especially when your business is experiencing unexpected issues or upheavals. Before signing on the dotted line, be sure to scour the contract details with a fine-tooth comb.
3. Making your selection based on rates alone
Low processing fees may seem great at the outset. However, it is unadvisable to choose a credit card processor based on rates alone. There are other important factors to consider, and they can dramatically impact how your business runs and your revenue as well. Instead of making a hasty decision, spend some time to understand their security features, technical support coverage, ease of integration and overall cost.4. Neglecting security and fraud protection
According to Nilson Report, card payment volume worldwide is expected to reach US$56.182 trillion by 2025. More worryingly, losses due to gross card fraud are projected to reach US$35.31 billion in just four years.1 Data breaches can hit retailers, big and small, as customers across the globe expect the best protection possible to minimise their risk of card fraud. When you evaluate vendors, be sure to shortlist a secure payment gateway that is backed by a reputable and reliable payment processing company.You might also want to select a provider that offers security services which enable you to proactively prevent fraud. This helps to protect your business and customers, and also ensures you are compliant with the Payment Card Industry Data Security Standard (PCI DSS) for greater peace of mind. Launched in 2006 to improve account security throughout the transaction process, PCI DSS is a set of rules and requirements designed to ensure all companies that process, store or transmit credit card information maintain a secure environment.
5. Limiting payment methods for customers
Consumers in today’s digital age expect more choices than ever. This expectation extends to products, services, and of course, payment methods when customers shop online. For their convenience, they expect to make their payments through a range of options. If your payment processor does not provide this flexibility which customers demand, it is likely you will experience an upsurge of abandoned shopping carts on your website. When you shop for a payment service provider, remember to choose a vendor that offers your customers a healthy selection of global payment solutions – the more the merrier.6. Overlooking setup and downtimes
Setting up multiple payment options on your own can take up significant time and effort, especially if you are not familiar with payment gateways and online checkout details. This is why it is critical to select a payment processor which provides easy setup and ample technical support. In reality, every minute of downtime will impact your sales and potentially your brand’s credibility. From start to finish, you will need a payment processor who understands these challenges and possesses a dedicated team to support your business should any payment-related issues arise.
Patience is key
Finding a suitable payment processing provider may seem like a monumental task, but careful research and a good understanding of best practices can help you find a solution to suit your business needs. As a business owner, you will want payment processes to be as seamless and hassle-free as possible. Hence, your final choice of a payment service provider should empower you to run your enterprise without having to worry about unwanted fees or customer attrition.The contents of this site are provided for informational purposes only. The information in this article does not constitute legal, financial, IT, business or investment advice of any kind and is not a substitute for any professional advice. You should always obtain independent, professional accounting, financial, IT and legal advice before making any business decision.
Sources:1Nilson Report, Issue 1187, Card Fraud Losses Reach $28.65 Billion, December 2020.
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