Guide to Payment Methods for Small Businesses

Consumers prefer speed and convenience when making payments, whether in stores or online. According to the U.S. Federal Reserve, 74% of consumers used faster payment services in the last 12 months and 57% expect to continue this trend in the future.1 These payment methods include various electronic options that transfer funds within hours of the transaction.

As a business owner, you’ll want to meet consumer demand for speedy transactions and have timely access to your funds. There are many options, all with unique purposes and advantages. Consider which payment methods for small businesses would work best for you.

Traditional methods are still among the top small business payment options.

Despite the surge in newer, faster payment technologies, traditional methods like credit and debit cards continue to dominate small business transactions. Ubiquitous acceptance and advancements in processing technologies have made these payment methods more convenient for both businesses and consumers.

• Credit and debit cards
  The Fed recently reported credit cards and debit cards combined for over 60% of monthly consumer payments, while cash dropped to 16% of payments and cash to 3%.2
  
  As a small business, accepting credit cards is now easier and affordable.
  
  How it works
  A payment service provider (PSP) processes and compiles daily credit and debit transactions, connecting merchants to financial institutions and card networks for approval and funds transfer. Card networks charge interchange fees for the transactions. Before choosing a PSP, evaluate the logistical, financial and regulatory aspects of accepting electronic payments.


• Electronic bank transfers
  Wire transfers, automated clearing house (ACH), direct debit and open banking transfers are electronic means to move funds from one account to another, or to withdraw money in the case of direct debits. They are earlier forms of digital payments. ACHs — also known as “electronic funds transfers” or “ETFs” — are a fast, low-risk option commonly used among small business payment methods, following cash, credit and debit cards.3
  
  How bank transfers work
  Soon after a purchase, ACH payments transfer funds directly between customers' and merchants’ financial institutions which are part of an expansive network. ACHs require businesses to pay an annual network participation fee and a per-transaction fee.

Integrating these tried-and-true payment options ensures you cater to a broad range of customer preferences and maintain steady cash flow.

Modern small business payment options enhance customer satisfaction and increase sales.

Digital and contactless payments are reshaping payment methods for small businesses. They offer greater ease of use, while increasing efficiency and security. With digital payments, consumers can transfer money electronically via a network, such as online banking or digital wallets. More than 92% of U.S. consumers used digital payments over the last year.4

Contactless payments use NFC or RFID technology, enabling consumers to tap or hold a card or device near a reader. Approximately 90% of U.S. consumers currently make contactless payments, and the market is expected to grow 19.1% until 2030.5

• Online payments
  There’s no need to exchange cash or checks with online payments. Shoppers can choose from a range of payment options, including credit and debit cards, bank transfers, prepaid cards and mobile payments. Online payments streamline and expedite transactions for quicker checkouts and greater customer satisfaction. Small businesses can also efficiently manage high transaction volumes.
  
  How online payments work
  Online payment methods for small businesses involve transferring funds electronically via a secure network. When a customer makes a purchase, the payment information is transmitted through encrypted channels to the payment processor, which then verifies the customer's financial information. When successfully verified, the funds transfer from the customer's account to the merchant's account. Security features include encryption and tokenization to protect sensitive information and prevent fraud.


• Mobile and bank apps
  With banking apps, consumers can check account balances, transfer funds, pay bills and conduct other financial transactions through mobile devices. Mobile apps also accommodate financial transactions, but support other uses like shopping, entertainment, gaming and social media. Integration with other apps and services enhances functionality, enabling users to perform multiple tasks within a single platform.
  
  How mobile and bank apps work
  Mobile apps operate through back-end and front-end systems. A user interacts with the app interface (frontend) to view accounts, make payments or shop, which sends requests to the backend. The backend includes servers, databases, and APIs that manage data storage, retrieval and processing.
  
  When using mobile and banking apps, encryption protocols safeguard data during transmission, while biometric authentication — such as fingerprint or facial recognition — provides an additional layer of security. This ensures that sensitive information is protected from unauthorized access.


• Mobile wallets
  Mobile wallets, also known as “digital wallets,” enable consumers to make contactless payments using applications for smartphones, tablets, smartwatches and other wearables that access users’ credit and debit card data. Additionally, mobile wallets can manage loyalty programs, rewards, gift cards, and non-financial applications like event tickets or boarding passes.
  
  Google Pay, Apply Pay and Samsung Pay are popular services that offer mobile wallets. Zelle, Venmo, PayPal and Cash App are other digital wallet options.
  
  How mobile wallets work
  “Digital wallets” are systems that electronically store and manage payment information, such as credit and debit cards, bank account details and digital currencies. When consumers load this information into their mobile wallets, they can then use their devices (usually smartphones) and “tap to pay” when making in-person purchases. Mobile wallets can also be used as an online payment method for small businesses since the data is stored. Users can bypass manual credit card data entry with their preferred identity verification method. Transactions are encrypted and user identities verified for security.


• QR codes
  Merchants can generate QR codes, two-dimensional barcodes, with which customers can make contactless payments using digital wallets. With QR codes, small businesses can process high transaction volumes more efficiently. The codes can also be used for digital marketing and loyalty programs.
  
  How QR codes work
  QR codes link directly to payment gateways. When a customer scans the code, the device reads the encoded information and navigates to a specific URL or payment site. This process enables customers to make contactless payments quickly and securely, without the need to manually enter payment details.

Adopting emerging payment methods can help small businesses streamline transactions and improve security, as well as attract and retain a wider range of customers.

Seamlessly integrate emerging payment methods into your business.

Digital and contactless payments are an efficient, cost-effective means to offer the diverse payment options consumers want. Whether updating your existing system or considering a new one, take time to assess your needs to ensure the small business payment option you select is right for your business.

1. Evaluate your operational processes.
   The type of business you run plays a key role in selecting the type of payment system you need. To make an informed decision, consider transaction volume and frequency, cash flow needs, inventory requirements, reporting and other operational factors. For example, a food truck and a hair salon would require vastly different systems, including software, hardware and payment services. A mobile point-of-sale (POS) system might work best for the truck, while a countertop POS might be more suitable for the hair salon. Both could benefit from near-field communication (NFC) systems that support contactless payments. However, an online-only business wouldn’t require hardware, and an ideal solution would be a secure online payment gateway for seamless digital transactions.


2. Offer the small business payment options your customers prefer.
   Consumers are picky about how they pay. In fact, 21% will shop with another business if their preferred payment method isn’t available at yours.6 Analyze your customer base and determine their preferences. Incorporating a variety of payment options, such as credit and debit cards, digital wallets, and QR code payments, can attract a broader audience and enhance customer satisfaction.


3. Calculate potential processing costs.
   Accepting credit cards will require you to pay bank interchange, card network assessment and PSP processing fees before chargebacks from returns and fraud. Additionally, consider any fees associated with accepting checks, which may include processing fees from your bank. Digital payments, such as digital wallets and QR codes, often incur lower fees but vary depending on the payment service provider.


4. Identify the fraud tools you’ll need.
   To safeguard transactions and protect sensitive information, small business payment systems must incorporate fraud prevention tools. These include encryption algorithms to secure data during transmission, as well as tokenization to replace sensitive data with unique identifiers. Multi-factor authentication (MFA) verifies transactions.
   
   Consider real-time fraud detection solutions that use machine learning to identify suspicious patterns and flag potential threats. Conduct regular security updates and compliance checks with industry standards, such as Payment Card Industry Data Security Standard (PCI DSS), to ensure you maintain a secure payment environment.


5. Select a solution and payment service provider.
   After evaluating your business needs and researching small business payment options, choose a solution that is fast, flexible and secure. A variety of payment service providers (PSP) are available. PSPs include financial institutions, as well as processors that serve only small businesses. Each PSP offers a distinct approach, so it’s important to ask questions to ensure the solution will meet your needs now and scale as the business grows.
   
   
   • Is the interface intuitive?
   • Is the solution compatible with other systems?
   • What payment gateway do you use?
   • What are interchange rates and subscription fees?
   • Which credit card brands and digital payment methods are supported?
   • What are security features and protocols?
   • Is reporting and visualization available?
   
   Your PSP should help configure the solution, including integration with front- and back-end systems, as well as payment gateways. Depending on your selection, setup can take as little as one day.


6. Establish a merchant account.
   You’ll need a merchant account to accept customer payments and transfer them to your business account. If your financial institution offers payment processing services, you’ll open the merchant account with it or a third-party PSP.

Need help choosing the right small business payment methods?

Your customers will appreciate the ability to make payments with their method of choice. Expedient, secure small business payment options help small businesses stay competitive.

Synovus is an SBA Preferred lending partner that understands our clients’ business needs. Our Synovus Commerce Suite is a solution that features shopping cart integration and inventory management, as well as secure online, mobile, contactless, recurring and unattended payment functionality. For more details, call 1-888-SYNOVUS (1-888-796-6887) or stop by one of our local branches.