In 2016, credit cards eclipsed cash in worldwide transactions. Additionally, the Pew Research Center found that less than a quarter of Americans make purchases with cash during the week. As a business owner, it's important that you set yourself up to accept an array of payment options. Offering different payment methods to your customers increases the likelihood of a sale. One of the areas that causes a lot of confusion is electronic payments. Electronic payments are those that are not cash and can include things like credit cards, debit cards, contactless payments, and ACH wires. In this article, we outline everything small business owners need to know about electronic payments. This complete guide will cover what electronic payments are, how electronic payment systems work, the benefits of implementing them, and tips to help you save money. By the end of this article, you’ll have a clear idea of what your business needs to do to start accepting electronic payments.
What Are Electronic Payments?
The most straightforward answer is that an electronic payment is any payment method that does not involve cash or physical currency. As mentioned, credit and debit cards are both examples of electronic payments, as are ACH wires. Other examples include:
Digital currencies like Bitcoin
E-checks, which require a customer's banking information, such as their checking account and routing numbers
Digital wallets like Google Pay and Apple Pay
Local businesses with brick-and-mortar stores don't necessarily need to accept electronic payments, though doing so can help them complete a sale. Imagine if you only accept cash. A customer goes to checkout, only to realize they don't have any cash on them. Your business just lost a sale from a customer who was willing to buy your product. If there is an e-commerce portion to your business, you will definitely need to accept electronic payments since you cannot use cash for online transactions.
How Do Electronic Payment Systems Work?
There are many steps involved with electronic payment processing. Included are the:
Customer: This is the person purchasing your good or service. This person may also be known as the cardholder if paying with a debit or credit card.
Merchant: This is you, the business owner.
Issuer: This is the customer's financial institution.
Acquirer: The acquirer is essentially your bank account. The acquirer is responsible for verifying the banking information sent by the issuer.
Payment processor: This party handles the transaction between the customer and the merchant account. You may also see this referred to as the merchant services provider.
Payment gateway: This is a payment service used to process transactions safely and securely.
When you accept electronic payments, the money passes through numerous hands before making it to your bank account.
What Are the Benefits of Electronic Payments?
As mentioned, electronic payments are beneficial because they increase the likelihood of completing a sale. No longer will you have to turn customers away because they do not have cash on hand. However, there are a few other benefits worth considering when deciding whether you should accept electronic payments.
It Increases Your Customer Base
Accepting electronic payments gives you the ability to operate online. This, in turn, grants you access to a much broader customer base. For instance, if you operate a local business, your customers are those who live in your town. Perhaps you get customers who come in from the town next door. But, generally speaking, your customer base is rather limited. Compare this to the internet, where your customer base is endless. You could sell your products to people on the other side of the country. Accepting online payments can introduce you to millions more potential customers. Of course, there are still benefits to brick-and-mortar stores accepting electronic payments. A recent poll found that 76% of customers carry less than $50 cash on them. Brick-and-mortar stores can expand their customer base by welcoming customers who don’t carry cash and only carry electronic forms of payment.
It Improves the Customer Experience
Should you choose to accept online payments through an e-commerce store, you will also improve the customer buying experience. No longer do customers need to go to a store to buy your product. Instead, they can complete the purchase from the comfort of their own home, with the mere click of a button. They can also shop when it suits them most, no matter if that's in the morning or at night. This also increases the likelihood of completing a sale, as it increases impulse buying.Accepting electronic payments can also improve the in-store experience for customers at brick-and-mortar retailers. It gives customers more payment options, allowing them to pay with the method that’s most convenient. Accepting electronic payments also occurs quickly, improving the customer experience.
It Grants the Ability to Accept Recurring Payments
Cash is always a one-time transaction. The customer needs to be present to complete the sale and they need to physically give you cash. Electronic payments, however, offer the ability to complete recurring transactions. With a recurring transaction, the customer enters their payment information once and agrees to be charged regularly. Examples of a recurring payment would be a monthly subscription service or a monthly gym membership. The customer only enters their payment information once, and your business gets to accept payment every month until the customer elects to cancel. This is not possible with cash-only payments.
Tips for Accepting Electronic Payments
If you're ready to begin accepting electronic payments, there are a few things to consider that can help improve the experience.
Don't Ditch Cash as an Option
Though electronic payments can increase the chance of completing a sale, it doesn't mean that you should eliminate cash entirely. In fact, continuing to accept cash can eventually save you money. This is due to credit card processing fees. Every time you run a credit card, you owe processing fees of approximately 3.5%. These fees pay the merchant service providers and other parties needed to complete the transaction. Typically, business owners are responsible for paying these fees, which can cut into their bottom line. However, if you implement a surcharge program, the cost of processing fees are passed to the consumer. Customers can avoid paying these processing fees if they choose to pay with cash or a debit card. Again, you want to give your customers as many payment options as possible during the buying and checkout experience.
Implement a Unified Payment Experience
If you have a brick-and-mortar and an e-commerce store, you want to make sure that you can easily track the transactions between the two. Similarly, you want to ensure that you can track the transaction no matter what payment method was used, whether it was cash or an electronic payment. Nadapayments offers a unified payment experience. The company provides a Wi-Fi-enabled EMV Quick Chip card reader that integrates with your point-of-sale systems and a virtual terminal that can accept:
No matter if you accept payments online, on your phone, or in-store, you can track the transaction through the Nadapayments unified payment experience.
Cut Out the Middlemen
Electronic payments cause money to pass through a lot of hands. Look for a payment processor who simplifies things for business owners. Nadapayments, for instance, charges a flat fee of $35 per month. This fee includes everything you need to begin accepting electronic payments. Not only does it include the hardware and software to get you started, but it also includes access to a merchant account. Essentially, it's a one-stop shop for everything you need to begin accepting online payments.
Accepting Electronic Payments Can Help Your Business Grow
If you're a business owner who currently only accepts cash, it's time to strongly consider expanding into electronic or online payments. Fewer people are paying with cash as credit and debit cards continue to grow. Accepting electronic payments increases the likelihood of you completing a sale. It can expand your customer base and improve the customer buying experience. It also allows you to implement subscription programs and other options that would require recurring payments, ultimately improving your cash flow. When accepting electronic payments, you want to make sure that you still offer cash as an option. If you offer cash and implement a surcharge program, you can save money on processing fees. Additionally, you want to make sure that your payment processing software works seamlessly between your brick-and-mortar and e-commerce stores. Lastly, make sure you find a payment processor who offers a unified payment experience. Nadapayments is a payment processor service that makes things easier for small business owners. Be sure to get started today to learn more.