Running a successful business without accepting or sending electronic payments is nearly impossible. E-commerce is the driving force behind innovative technology in the banking industry. Don’t lose business because you don’t have the capability to accept electronic payments.
There are various forms of electronic fund transfers (EFT) that can interface with your business. Whether it’s B2C, B2B, or B2E, understanding how electronic payments and services interface with your accounting system is a necessity.
Electronic payment technology is changing how we all do business. It’s time that everyone learns to embrace it. Businesses should always be in search of new ways to enhance customer experiences.
This guide is for business owners thinking about accepting online payments. Continue reading to learn how electronic payments work.
The Main Players
There are several key components when it comes to accepting and sending EFTs. Each step must be successful for a transaction to complete the full cycle.
It’s easy to start the electronic payments cycle. A business must first make the option available to customers. This can be via a pay-button on the business website, a card reader, or an electronic email with a pay online feature.
E-commerce websites have added responsibilities and liabilities. Do your research to understand the pros and cons before moving forward.
Site users are entrusting you with their financial information. Once the online shopping cart finalizes, data gets sent through a payment gateway.
The customer must agree to the terms of an electronic transaction by submitting their credit card information. The gateway delivers the data to the next step in the process.
The Payment Processor
In this step, the customer’s information gets verified for accuracy and funds availability. If funds are not available, the customer receives a notification that the transaction didn’t go through. They will also have the option to try a different payment method.
If the second attempt is successful the process moves to the next step.
The Payment Service Provider
Before being able to accept electronic payments, the business must first establish an account with a payment service provider. The provider controls the security of the transaction. The business enters into an agreement to pay a per transaction fee or percentage for each completed transaction.
Popular payment system providers include Stripe, PayPal, Square, and Google Checkout.
After the electronic payment goes through the cycle, the customer’s bank or credit card provider releases the funds. The money goes into a merchant account.
Merchant accounts get established through an account with a payment system provider. The final step is to deposit the funds into a business bank account.
The entire process can take 24-36 hours to complete.
Learn about the Automatic Clearing House (ACH) payment and how it works. It involves another type of bank transfer.
ACH allows employers to pay employees through electronic transfers. Monthly expenses get paid this way too.
The Benefits of Accepting Electronic Payments
Convenience to the customers is the obvious benefit of accepting electronic payments. There are so many transactions taking place online, it makes sense to take advantage of the opportunity to offer e-commerce services.
Also, most payment systems providers offer card readers for in-person transactions. Readers and swipe machines give businesses the flexibility to accept extra payments. Both can be used in storefronts, trade stores, and any location accessible to WiFi.
The benefits of electronic payments include fewer trips to the bank and fewer NSF fees when a customer’s check gets returned. Instead of depositing a check directly into a bank account, the account holder processes the check as an EFT. The bank routing number and account number are entered via an online account.
Who Can Accept Electronic Payments?
Online payments are geared toward businesses with e-commerce websites. These services also extend to individuals without businesses.
Anyone with a website offering a product or service can apply for a payment systems account. Events, conferences, group memberships, or charitable donations with a fee are collected via electronic payments.
To establish an account, a social security number and bank account are required. This needed to complete the identification verification process.
How Secure Are Online Payment Systems?
The security of the customer’s data is at the forefront of their minds when making an online purchase. It’s the responsibility of the site owner to ensure data is protected on their website.
The first step ensures the website is secure. If the URL address begins with “HTTPS,” data transmitted over the site is encrypted and secure.
The next step is to select a payment system provider that is PCI compliant. Compliance means industry standards are being met. Not only to protect the customer’s data when it’s transmitting but also when it’s stored on a cloud server.
The payment system provider must require strong authentication to verify the card user’s identity. The third step is the encryption of data as the credit and debit card information is being transmitted.
Preventing Payment Fraud
Fraud can occur on e-commerce sites in two ways. One way is identity theft and the other is when an online account gets hacked. Both can end up costing businesses a lot of money.
With identity theft, fraudulent activity leads to stolen information. The information can include social security numbers, passwords, usernames, and credit card information. Once criminals have this information, they use it to make fraudulent purchases.
Like identity theft, online account hacking occurs when someone gains unauthorized access to online information. In this case, site users create accounts that store their personal information. A preferred method of payment is also saved on the account.
Once inside the account, hackers make fraudulent purchases.
Now That You Understand How Online Payment Systems Work — What’s Next?
Owning a business is multi-faceted. There is always something new on the horizon, including building the perfect team and accepting electronic payments.
Don’t allow technology to intimidate you. There are so many reasons to embrace the next great thing to come down the pipeline
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