Every digital business needs a reliable toolset that will support its operations. And for many of them, online payment processing platforms are essential: according to a 2018 survey, 62% of UK’s small and medium enterprises use digital solutions to make or accept payments. However, choosing among a plethora of payment processing companies is not a breeze. This one decision can have serious implications in multiple areas, starting with customer experience, transaction security, and even your business cash flow.
Are you facing a similar dilemma? Check out this practical guide to online payment processing for startups.
What are payment processing providers?
A payment processor is fundamental to handling online commerce transactions. It’s a third-party company responsible for transferring funds from a buyer’s bank (an issuing bank) to a merchant account.
The main function of a payment processing company is to validate transaction credentials (such as credit card details) obtained from a payment gateway, check funds availability and enable money transfer to the receiving bank account. In short, it intermediates between your bank and your customers’ banks as well as tackles all security and fraud detection issues. It’s worth noting that some PayTech providers offer an all-in-one service and merge payment processing and gateway into one platform, which simplifies the process.
Wait a minute… Do I even need payment processing?
Checkout and payment are crucial yet highly vulnerable stages of the customer journey and can have a great impact on the overall user experience or even put the purchase at risk. In fact, in Facebook’s Zero Friction Future report, purchase friction was named among the top obstacles customers encounter when shopping online. According to the research, the major pain points regarding online payments are:
- limited payment options
- transaction delay or failure
- credibility issues
- poor UX of the payment form
Therefore, payment processing platforms are indispensable whenever checkout is a critical element of the customer journey, e.g. in e-commerce, subscription businesses, marketplaces, and mobile apps.
Security and strict compliance with norms (such as PCI Security Standards required for entities processing cardholder data) are another concern. However, these challenges can be addressed by choosing a reliable payment gateway and processor that will eliminate all possible issues in terms of compliance, UX, and purchase friction.
Top 5 online payment processing companies
Stripe is an all-in-one digital payments suite: an online payment processing provider with an integrated gateway. With its huge market share, Stripe is the unquestionable leader of online payments and the largest privately-held US FinTech company as of 2020.
Stripe gives internet businesses multiple advantages when it comes to accepting payments: a complete, fully compliant, and global-ready platform with an API-first approach that allows for accepting a wide range of payment methods in 100 different currencies.
Used by: Kickstarter, Slack, Booking.com
Pricing: Payments with European cards: 1.4% + 20p per every transaction, non-European cards: 2.9% + 20p per transaction.
Recurly is a subscription-friendly provider that supports recurring payments by definition. It’s the preferred choice for subscription-based startups with automated recurring billing: software-as-a-service tools, membership platforms, streaming media, box subscriptions with consumer goods and many other similar business models.
Startups charging clients based on the recurring model often encounter problems, e.g. credit card declines, which break subscription continuity. This affects their key business metrics, such as customer churn rate and monthly recurring revenue. As a countermeasure, Recurly uses cutting-edge machine learning solutions to optimize billing and tackle involuntary churn caused by failed payments. However, a payment gateway doesn’t come included, so connecting Recurly with another third-party solution is required.
Used by: Asana, Twitch, LiveChat
Pricing: Recurly’s basic plan starts at a $149 monthly fee plus 0.9% per transaction.
This payments-as-a-service API platform is a next-gen alternative to traditional banking for wholesale and business payment processing. Modulr targets mainly small businesses that rely on traditional banking infrastructure and are charged unreasonable administrative costs.
With Modulr’s REST API, startups can embed instant payments in their own platforms, such as web or mobile apps, and even build new payment and financial products based on Modulr’s infrastructure (this service is already used by such a prominent FinTech as Revolut). But the provider goes beyond just processing payments, as it offers also payroll automation, payables and receivables flows, as well as real-time notifications, thus covering most of startup needs in terms of financial operations.
Used by: Revolut, Sage, Paxport
Trustly is an alternative platform turning tables in online payments with a somewhat simple, yet unusual solution: online banking payments directly on the checkout page. Consumers can conveniently transfer money from their bank accounts to merchants in seconds, without being redirected to the online banking service.
Trustly has an extensive partnership network, including banks in almost 30 European markets and processes over 9 million payments monthly. That’s not all, folks: the provider also guarantees full coverage of the refund process, therefore taking this burden off the shoulders of their clients.
Used by: Shopify, Transferwise, PayPal
If you expected to see PayPal on this list, here it is… although disguised as a PayPal-owned service: Braintree. This provider integrates payment gateway and payment processing into one simple and accessible platform.
Braintree allows businesses to accept a wide array of payment options (PayPal, Venmo, credit and debit cards, to name a few) and offers multiple third-party plugins to integrate with the most popular e-commerce platforms, ERP software and other handy tools. As for the UI, you can either take advantage of a ready-made interface or opt for a custom checkout flow.
Used by: Uber, GitHub, Dropbox
Pricing: 1.9% plus £0.20 per transaction. Custom pricing available.
As you can see, there is an abundance of online payment processing companies that offer tailor-made solutions for startups. Not sure which one fits you best? Having problems integrating a chosen service with your app? We’re here to help, so don’t hesitate to contact us to discuss your case in detail!