Are You Using The Best Payment Processor for Your Small Business?

The world of payments is changing at a dizzying pace, which is why it’s good for small businesses to take stock of how they accept payments on a regular basis and consider choosing a different payment processor. The best payment processor for your small business will ultimately depend on your specific needs, but we hope to help guide your decision. 

Small business payment processing is all about handling the transactions that keep your business ticking along. And that could be everything from in-store POS transactions, to ecommerce sales, right through to payouts to staff and contractors. 

You might be tempted only to make arrangements for payment processing once, at the onset of your small business. But payment processing is integral to your growth and success. 

This article is hopefully going to give you the confidence to play a more active role in managing your payment processing. We’ll talk about:

• The biggest payment processing challenges for small businesses
• Why you should assess your current payment processing setup
• How to actually evaluate payment processing performance
• How to link payment processor options to business goals
• Plus what to do after you’ve completed your review
• The difference the right payment processor makes: a case study

Let’s get into it.

Payment processing challenges for small businesses

According to a Payments Canada interview with CFIB president Dan Kelly, there are several key issues when it comes to payment processing. Those include:

• High transaction fees: Small businesses struggle with high fees, particularly for credit card transactions. Kelly notes that these concerns are heightened by consumers’ penchant for using credit cards due to rewards points and programs. 
• Complex pricing structures: There can be a lack of transparency around payment provider’s pricing. Business owners may find it challenging to navigate all the fees associated with payments. 
• Chargebacks: Customers requesting refunds from their credit card companies pose a risk to your bottom line. While larger businesses may not struggle as much with chargebacks, SMBs are significantly impacted. 
• Payment fraud: Secure transactions are top of mind, but guaranteeing this may be difficult for some. According to Kelly, small businesses are increasingly becoming targets of online fraud, data breaches and counterfeit currency. 

Additionally, small businesses tend to pay higher fees–ranging from 2.5% to 3.5% per transaction. This may be because they don’t have the resources to negotiate better rates. 

As consumer habits evolve, as do their payment expectations. Failing to lack a variety of payment methods can cause customers to turn to your competition. Ultimately, small businesses may not be able to reach their full potential due to these obstacles. 

Related: Want to learn more about payment pricing models? Read our in-depth article. 

Why you should assess your payment processor each year 

Here are three reasons why you should evaluate your payment processor at least once a year.

• Payments affect your revenue: “Your payment processor has an impact on every single sale you make, which means that even a small difference in price, performance, or options can make a huge difference to your bottom line,” said Ann Martin, director of operations at CreditDonkey. 
• You have more payments options: “This is also a rapidly-growing field with lots of competitors entering the space, meaning that it’s a good time to be shopping around,” she added. “Martin suggests businesses audit their own records periodically to make sure they’re getting the rates and performance they have been promised.
• Payments remain a fraud target: Jae Jun is a multimillion-dollar ecommerce seller on well-known sites such as Amazon and Woocommerce. He evaluates his business’s payment processor options yearly. “Because payment processing is complex, a business needs to use a payment processor that is continually updating their fraud rules to protect the business against fake payments, stolen cards and other possible fraud,” he said. 

How to evaluate past performance 

Let’s look at some useful ways to assess a payment processor’s performance.

1. Check your conversion rates

This is a big one for ecommerce. Errors in payment gateways or complicated checkout processes will lose you customers, time and money. Here are two common ways to assess your conversions with your current payment processor. 

• Payment conversion rate: PCRs represent the percentage of successful transactions. Transactions can fail because of insufficient funds, fraud, or payment gateway downtime. So this metric is not watertight. But it does show you where you might need to make changes to your point of sale. 
• Payment form conversion rate: This involves tracking the number of customers who reach the payment form and those who make a payment. Again, it will reveal some of the gaps in your payment process. For example, common problems include not offering the right payment methods, not supporting specific devices or just being too confusing or untrustworthy for the customer.

2. Review transaction fees

“Looking at the history of the payment processor and the performance and fees for different card and transaction types is key,” suggests Jun. “We’ve found that paying a little higher is always better than trying to find the cheapest solution. A higher fee to the merchant could end up being cheaper over the long run due to higher conversion, successful payments, winning fraud claims, being protected from fake shoppers online, fraudulent returns by customers.”

3. Assess downtime

Businesses should pay close attention to how often a payment processor goes down, if at all, and if their customer support is easy to contact. “Some review sites have set up test environments that you can use to see how long it takes to send transactions through the processors and how many transactions can be processed at one time,” said Lynda Fairley, co-founder of reverse phone number service, Numlooker.

4. Rate the customer service

Support is a dealbreaker when it comes to smooth payments. If you do run into problems, you want to know you can get support fast. This is why customer service is a major factor to consider. It’s worth asking:

• Does the payment processor use overseas call centers? 
• How long does it take to have a simple issue like a bank change resolved? 
• Does your payment processor provide a dedicated account manager? 
• What additional support does your processor provide?

“A bad customer service department can make working with processors extremely difficult and that should be one of the most important factors when choosing a provider,” said Chris Kille, president and CEO of Payment Pilot. 

5. Review fraud protections

Make sure your payment processor complies with the PCI Data Security Standard (PCI DSS). The standard is designed by the PCI Security Council to protect customers, merchants, and other businesses from payment fraud. You should also ask if payment processors use point-to-point encryption and tokenization technology). Tokenization replaces a customer’s Primary Account Number with a ‘token’ hackers can’t use.

6. Assess software integrations

“Payment processors should provide plugins or APIs that allow you to incorporate payment processing into your software smoothly,” said Alex Wan, co-founder of Vinpit, a free service for checking vehicle identification numbers. “Businesses will save time and money as a result of this and decrease double-data entry errors and simplify the reconciliation process.” 

To go a step further, it’s ideal for your payment system to be embedded into the POS software you use to run your business. That way, all your systems are completely connected. Any additional add-ons will be easier to integrate. When your payment processor is connected directly to your POS, all transactions are recorded automatically, among other benefits. This reduces the chance of human error due to manual entry and saves you time on reconciliation. 

7. Review your access to data

Do you receive in-depth reports on payments, sales and customers? If not, you may want to reconsider your provider. Data and analytics are a big way small businesses are growing these days. With the right payment provider, you can gain access to actionable insights. These can help you make high-level and revenue-boosting decisions based on popular payment methods, customer preferences and more. 

8. Evaluate your payment options

If your payment processor doesn’t give you much flexibility in the way of payment methods, it may be time to switch. You should be able to accept digital wallets like Apple Pay and Google Pay, credit, debit, and other increasingly popular payment options. 

Did you know? Lightspeed POS and Payments streamlines transactions and sales for businesses of all sizes. Automated amounts speed up checkout, plus our platform provides plenty of payment method flexibility. You also get a full view of all your sales across channels, from online to in-store to marketplaces.

How to evaluate against future goals 

And you want to be sure you’re with a processor that can grow with your business too,  according to Francisco Hernandez, director of risk and underwriting for Redde Payments. 

“If you’re a brick and mortar store you may want a provider that has a wide variety of devices for checkout. It may not be important to you if the provider accepts payments in other countries since all your customers are local,” he said. “Or vice versa, if you’re an online retailer you should look for a provider that can accept different currencies with simple checkout pages.”

Speak with one of our experts today to learn more about Lightspeed Payments.

Melissa Johnson, a payments analyst at MerchantMaverick.com, suggests businesses come up with a list of ‘deal breaker’ features — the bare minimum you absolutely need — as well as a list of “nice-to-have” features. 

“Those are the ones you’d like to have but can find workarounds for. Then, start shopping around for quotes from payment processors. You want to find a processor that gives you all of your must-haves, a good rate, and several of your “nice to have” options. You’re looking for the optimum balance between all those factors,” said Johnson. 

Next steps after evaluation

Whether you decide to stay with your current payment processor or move to a new provider, be mindful that you can negotiate a better deal than the first one you see.  

Read the contract’s fine print 

Closely review your contract against any promises from sales. 

“While you can price yourself out to adjust for different changes such as more online payments, the fine print of a contract is truly going to tell you whether or not it is a good processor,” said Glen Bhimani, CEO and founder of BPS Security.  

“I have seen some contracts that I would not touch with a 10-foot pole because the fine print would have impacted our growth with additional fees applied to different random transactions.”

Negotiate transaction fees

Get as much information as possible about fees, how they will change if your business grows, and if there are any hidden ones you need to watch out for. When negotiating fees with your current or existing payment processor, consider:

• Your processing volume and average ticket size
• The projected number of transactions
• The type of business (e.g. retail, eCommerce, etc.)
• The expected monthly volume 

Related: Here are 10 things small business owners should know about payment processing. 

The difference your payment processor makes: a case study 

Let’s go over a real-life example of what choosing the right payment processor could do for you. 

Detroit-based gift shop retailer City Bird has used Lightspeed since 2011. Co-founders Emily and Andy Linn wanted to find a system to connect their multiple locations. They manage thousands of items, as well as a line of 300 SKUs that they wholesale to 120 stores around the Midwest. 

Their solution was Lightspeed, the platform capable of managing thousands of items. “It’s helped us find new paths for the business, find new efficiencies and new ways to grow,” Andy says. 

Plus, they’ve saved 0.5% on each transaction since switching to Lightspeed Payments. “​​You want to see payments that were processed, you just click some buttons right in the POS screen on the iPad and see the payment as it comes through right there. You can see payouts right there as well. It’s very intuitive for all staff,” Andy says. 

They also highlight how Lightspeed’s support has helped their business, especially when it comes to chargebacks. 

Andy explains: “With Lightspeed Payments specifically, support has been outstanding. Lightspeed’s assistance with chargebacks is something completely new for me. With other companies, you get a letter a couple of weeks after the incident and it’s almost too late to respond, and you feel lost and overwhelmed.”

With Lightspeed Payments, City Bird not only saved on transaction costs, but increased efficiencies with a payment system connected to their POS.

Find the right payment processor

Small business payment processing doesn’t have to be challenging. 

Regularly reviewing your payment processor to ensure it’s still serving your needs gives you both leverage and flexibility, said Johnson, of Merchant Maverick. “If you review your rates and fees at least annually, you can make sure your costs aren’t gradually creeping up as junk fees sneak into your statement.”

Speak with one of our experts today to learn more about Lightspeed Payments.

Editor’s note: Nothing in this blog post should be construed as advice of any kind. Any legal, financial or tax-related content is provided for informational purposes only and is not a substitute for obtaining advice from a qualified legal or accounting professional. Where available, we’ve included primary sources. While we work hard to publish accurate content, we cannot be held responsible for any actions or omissions based on that content. Lightspeed does not undertake to complete further verifications or keep this blog post updated over time.