Pay By Group University: Payment Processing for Card-Not-Present Merchants 102
Welcome back! Now that we’ve taken a quick look at the basics of the card-not-present payment processing world and examined one of the major factors to consider when choosing your processing solution, let’s get familiar with another: payment processing types. There are several types based on the manner and time frame in which transactions are settled, as well as the forms of payment accepted, and all will affect your business in terms of the options you can offer and the costs you’ll incur.
Real-time payment processing allows CNP (i.e. online) merchants to offer expedited processing, which can help customers quickly prevent service disruption (for example, to keep their cell phone active by paying a late bill and having the payment quickly credited to their account).
With real-time payment settlement, data processing errors can be corrected instantaneously, allowing merchants greater control over inventory and inventory turnover and reducing the costs you might incur by allowing such errors to play out over longer periods of time and affect your accounting & reporting.
Additionally, your customer satisfaction level can potentially be increased by offering instant online billing, which also reduces the costly and environmentally unfriendly use of paper bills. One of the drawbacks of real-time processing systems is that auditing such a system can be costly and time-consuming, and requires regular data backup (and the associated cost of storage).
Batch processing occurs when settlement occurs for many transactions simultaneously and automatically at the end of a recurring period, usually a given business day. Batch processing increases ease of use for merchants by eliminating the need for constant supervision and backup of data. This reduces manpower requirements and computer processing time, and leaves a streamlined and reliable audit trail. However, batch processing is usually slow and transactions take time to be processed and/or returned.
Automated Clearing House or ACH payment processing involves payments transacted via the Automated Clearing House payment network. Such payments are immediately credited to bank accounts, which reduces the amount of possible errors when compared to other payment forms such as paper checks. The ACH processing service automates the collection of bad checks on behalf of the merchant.
ACH processing incurs its own costs, including setup and transaction fees. ACH payments may not be immediately available for withdrawal, and insufficient funds on the part of the customer or disputed charges will prevent a merchant from receiving or keeping payment, if only temporarily in the case of some disputed charges.
E-Check payment processing offers lower processing costs when compared to credit card and paper check processing, and merchants receive funds more quickly than with paper checks (sometimes within one business day). Merchants can accept out-of-state and international checks with little risk using e-check payment processing, as built-in customer authentication and account validation processes help prevent fraud and detect bad checks in real time.
A potential negative aspect of e-check processing is that funds are immediately debited from a customer’s account, which can increase the risk of failure due to insufficient funds and lower customer satisfaction if the customer is taken unaware and charged an overdraft fee by their bank.
Multi-currency payment processing consolidates payments made in several currencies into a single-currency payment to a specific bank account. This is very convenient for merchants who cater to an international audience. However, multi-currency processing can be hampered by location-specific restrictions in some places, so it’s good to know if you or your customers might fall within such areas before choosing this solution.
New payment methods and their implications
With the ever-increasing advent of information technology, alternatives to existing payment systems are rapidly emerging and may supplant traditional payment methods for many very soon. These include mobile wallets, peer-to-peer transactions, and social media payments. which we’ll look at in additional detail below:
Mobile wallets such as Apple Pay and Google Wallet use Near-Field Communications (NFC) technology to make proximity-based point-of-sale payments via mobile device at special terminals. Payments made using mobile wallets are currently hard to track and measure, and expensive to accept, but their growing adoption promises to drive the cost of accepting them down in the near future.
Peer-to-peer (P2P) transactions using services like PayPal, Venmo, and Chase Quick Pay allow users to send money directly to another person via computer or mobile device using existing payments networks. This can be very convenient but is potentially subject to abandonment due to vulnerability to fraud and attendant increasing security requirements. Thankfully, payments made from a checking or savings account or credit card are protected under federal law. Some banks are beginning to pass the cost of these transactions on to the users directly, which may also negatively impact their usage.
Social media payments such as Facebook Messenger Payments allow users to connect their credit card information to their Facebook account and make encrypted P2P payments via Facebook’s existing network. There are no fees at this time since Facebook doesn’t currently need to monetize these payments. Keeps users within the Facebook ecosystem and may drastically increase the prevalence of P2P and micro-payments due to convenience and lack of fees, and may drive a stake in the heart of the more “traditional” P2P networks mentioned above.
Understanding your gateway requirements with reporting and analytics
The number one way to calculate your true gateway needs is via reporting and analytics. When you select a payment gateway and consider some of the many payment processing types, insist on sturdy reporting and data analytics capabilities.
Reporting gives you insight into recent changes to your business’s priorities and helps you build custom methods to address the shifting economics of the business; they’re also essential in planning for upcoming events. There are several types of reporting metrics and analytical functions you should evaluate when deciding on a gateway:
Authorization performance analysis: Predictive modeling can yield perspective into the long-term value of your customers and aid in the improvement of ratios profitability.
Risk assessment analysis: Completion of an overall evaluation of fraud, chargeback, refund, and decline risk assessment allows you to understand the high-risk components of the business.
Custom analysis: Since each business is different, CNP merchants should contemplate relevant bespoke analyses and reports they may want to build based on their industry and business operations.
Overall profitability analysis: Evaluation of all transaction volume leads to the creation of a logical segmentation of the entire business, after which these segments are ranked by profitability; solutions may be created to boost low or unprofitable segments while marketing for high-earning channels can be even more intelligently invested.
Chargeback, refund, and fraud forecasting: Predictive analyses of chargeback, fraud and refund activity allows for necessary preparations and adjustments to decrease the various risks associated with processing.
Now we’ve gotten familiar with two of the major factors merchants need to consider when choosing a payment processing solution, rates and fees & processing types, as well as existing and emerging players in the payment ecosystem. Stick around for upcoming articles where we’ll cover payment processing security, compliance, the total cost of acceptance, and more!