Online payment processing involves handling financial transactions between customers and businesses over the Internet. It requires payment gateways and processors to authorize and complete transactions securely.
Today, many B2B businesses are moving away from paper check payments towards online payment processing. Digital payments are generally more secure and efficient than these traditional payment methods.
This article will explain online payment processing and the advantages it offers B2B companies.
What is Online Payment Processing?
Online payment processing is the act of accepting electronic payments for purchases taking place online. There are different types of online payment processing, including:
• Credit and debit card payments
• Bank and wire transfers
• Digital wallets
How Online Payment Processing Works
At a high level, when a buyer makes an online purchase, their payment details are usually encrypted and sent to a payment processor, which confirms the information with the buyer’s bank or credit card issuer. Upon approval, the funds are transferred from the buyer’s account to the supplier’s account.
A few key components of online payment processing include:
Payment processor: Services that handle the authorization, processing, and management of financial transactions between buyers and merchants.
Payment gateway: Technology used by suppliers to accept electronic payments. The term refers to physical card-reading devices in brick-and-mortar stores as well as the payment processing portals used for online purchases.
Merchant accounts: A type of bank account that allows businesses to accept and process electronic payments. Merchant accounts act as intermediary holding accounts where funds are deposited after transactions are approved but before funds are transferred to the supplier’s bank account.
Benefits of Online Payment Processing
Online payment processing is designed to deliver fast, secure, and convenient payments compared to traditional paper-based checks.
Increased Convenience
Online payment processing offers convenience by facilitating transactions anytime, anywhere. It reduces the need for physical handling of cash or checks, helps streamline accounting processes, and supports automated record-keeping, helping foster efficiency in accounting departments.
Faster Transactions
Online payment processing is designed to eliminate common delays associated with the manual processing of cash and checks – funds are typically verified and transferred quickly, which can reduce transaction times and improve cash flow.
A typical check transaction takes up to two business days to settle, plus the time it takes to mail the check. But electronic payments like ACH transfers can be settled multiple times throughout the day.
Enhanced Security Measures
Online payment processing usually involves enhanced security procedures that aren’t typically utilized for paper-based payments. For example, checks are easily stolen in the mail and “washed” in check fraud schemes. But most online payment processing systems use tokens that encrypt customer data, helping make sure sensitive information isn’t stored or shared during the transaction process.
Broader Market Reach
Because of the convenience enabled by online payments and the expansive reach of the internet, utilizing online payment processing can give businesses access to more potential customers.
Types of Online Payment Methods
Online payments can be conducted via several methods, including the following popular options.
Credit and Debit Cards
Credit cards and debit cards are common online payment methods. Credit cards allow buyers to make purchases on credit, drawing from a predetermined credit limit. Debit cards, on the other hand, directly deduct funds from the buyer’s bank account for transactions.
E-Wallets
E-Wallets include platforms like Venmo and Apple Pay that securely store a buyer’s payment information. When conducting online transactions, e-wallets supply the necessary details instantly, eliminating the need to repeatedly enter card information.
While e-wallets are generally more popular for consumer transactions, our AvidXchange Controllers Council National Survey (March 5-9, 2024, 378 respondents participating across North America) found that 22% of finance departments are currently processing digital wallet payments for their suppliers.
Bank Transfers
Bank transfers are also sometimes called wire transfers. They involve the electronic transfer of funds from one bank account to another. Bank transfers include transactions on the Automated Clearing House network and real-time payments on networks like FedNow.
Cryptocurrency
Cryptocurrency is a form of digital currency that does not rely on a bank or other centralized system to maintain records. Transactions are conducted via blockchain networks. Examples include Bitcoin and Dogecoin.
According to our Controllers Council National Survey (March 2024), 7% of businesses today use cryptocurrency as a payment method for suppliers.
Tips for Choosing the Right Online Payment Processor
Consider the following elements when selecting the best online payment processing system for your business.
Fees
Assess the fee structure when choosing an online payment processor, including transaction, setup, and maintenance fees. Transparent pricing is important for budget management. In some cases, fees may decrease as transaction quantity increases.
Security
Prioritize a payment processor with strong security measures, such as encryption, secure connections, and PCI DSS compliance, to help safeguard customer data. Features like fraud detection and secure authentication processes support the protection of sensitive data and can help build customer trust.
Customer Service
Reliable customer service is important to facilitate maximum uptime. Look for a processor with 24/7 support and multiple contact options, such as phone, email, and live chat. In addition to a responsive and knowledgeable support team, check to see if the provider offers robust onboarding support to help get your business up and running.
Integration Capabilities
Choose a payment processor that integrates with your existing systems, such as your e-commerce platform, accounting software, and enterprise resource planning (ERP) tools. Easy integration can help reduce technical challenges, streamline workflows, and enhance overall efficiency.
Support for Your Business
Choose an online payment processor with proven expertise in your type of business. Some systems are designed for consumer applications while others better support B2B businesses. Different processors may specialize in certain industries, like real estate or construction. Additionally, some may better meet the unique requirements of small businesses vs. middle-market companies or large enterprises.
Security Considerations in Online Payment Processing
Our 2024 Trends Survey identified data protection and security as the top priority for most finance departments in 2024. Given the importance of security when it comes to payment processing, businesses may want to confirm their online payment processing software employs security measures, including:
• Advanced encryption protocols to protect against data breaches and identity theft
• PCI DSS compliance to secure sensitive data
• Fraud detection tools that monitor transactions for unusual patterns and flag suspicious activity
• Multi-factor authentication (MFA) to protect against unauthorized system access
• Security audits to identify new vulnerabilities
• Regular software updates to safeguard systems against evolving threats
• Dedicated security support personnel
Common Challenges and Solutions in Online Payment Processing
As with any technology, online payment processing systems may occasionally experience challenges. Some common hurdles and associated solutions are listed below.
Technical Issues and Downtime
Select a payment processor with a strong track record for uptime and round-the-clock technical support to promptly address any technical issues. Check that your processor has backup systems and redundancy to help minimize downtime during technical failures.
Performing regular system maintenance and updates to prevent and fix technical issues plays a role in keeping your payment system running. Monitoring tools can also help track system performance and set up alerts for potential issues, enabling a quick response.
Chargebacks and Disputes
Businesses can address chargebacks and disputes with their online payment processing system by maintaining detailed transaction records to provide evidence in case of disputes. Close collaboration with the payment processor to support consistent dispute resolution procedures is important for minimizing the impact of chargebacks.
Buyer Adoption
Businesses can promote the adoption of their online payment processing system by prioritizing a user-friendly design, making the payment process intuitive and straightforward. Additionally, offering multiple payment options, including credit/debit cards and digital wallets, caters to diverse buyer preferences.
Providing incentives, like discounts or rewards for using the online payment system, can also encourage adoption.
Best Practices for Optimizing Your Online Payment System
Consider focusing on the following elements to get the most from your online payment system.
Streamlined User Experience
To streamline checkout, avoid asking for unnecessary information. Provide one-click payments and auto-fill options for repeat buyers.
Publish clear information about total costs, including fees and taxes. Offer multiple payment options to enhance convenience and address customer preferences.
Mobile Optimization
With skyrocketing mobile phone usage and the popularity of remote work, mobile optimization is important for any website. Ensure your payment system has a responsive design that adapts to various screen sizes and orientations. And optimize performance to facilitate quick load times on mobile devices, as slow speeds can frustrate users and lead to abandoned transactions.
Regular Updates and Testing
Regular updates and thorough testing are key to maintaining an optimal payment system. Keep your payment gateway and related software up-to-date to address security vulnerabilities and improve functionality.
Analytics tools can help monitor performance, tracking metrics such as conversion and cart abandonment rates to identify improvement areas.
The Future of Online Payment Processing
The future of online payment processing for businesses is driven by emerging trends and technologies. Artificial intelligence (AI) and machine learning will likely play an increasing role in fraud prevention. AI and machine learning can analyze vast amounts of transaction data quickly, helping identify patterns and anomalies that could indicate fraudulent activity.
Unlike traditional rule-based systems, machine learning is designed to continuously adapt to new fraud tactics, enhancing accuracy and effectiveness over time. Using these technologies can help businesses that use online payment processing minimize financial losses by protecting against evolving threats.
Other trends that may impact the future of online payment processing include:
• Increased adoption of digital wallets and contactless payments to cater to buyers’ demand for speed and convenience
• Cryptocurrencies and blockchain technology as payment options
• Biometric authentication methods, such as fingerprint and facial recognition to deliver enhanced security and a simplified user experience
To learn more about the future of payment technology, download our latest guide, “B2B Payment Trends,” for a comprehensive look at the latest advancements in digital payments.