The mystery of business payment solutions solved
Have you ever considered how all the different parts of a business payment solution come together to enable merchants to accept credit cards from customers? To the untrained eye, a payment solution may look like a simple set of hardware components: a cash drawer, a place to swipe a credit card, and perhaps a barcode scanner and receipt printer. And that isn’t necessarily untrue, but the ins and outs of a payment solution are a lot more intricate than you might think and have real-world implications for your business. A payment system consists of a complex array of technologies and digital processes that all come together to work in concert, at mind boggling speeds, across vast distances, to facilitate the instantaneous movement of funds and goods that make up modern commerce.
As consumers ourselves, most of us understand how payments work from the cardholder’s perspective. But if you’ve never operated a business, or are looking to expand your business infrastructure beyond the most basic cash drawer, it’s helpful to have a better understanding of the components at play.
So, let’s dive into the back end and do a little exploring to reveal the mysteries behind the main players that come together to create a solution for businesses to accept payments.
Payment hardware manufacturers
The term “payment hardware” refers to the aspects of a payment system that you can touch, like the computer, the screen, the magnetic card swiper, and receipt printer. Other examples of hardware components include a cash drawer, a PIN pad, scanner, and tableside terminal, customer display screens, and even mobile dongles that enable payments on a mobile device.
Some of these hardware components have software programs built in, like a terminal capable of reading and sending payment information for authorization across an electronic payment network. But they generally need to be connected to some sort of software program in order to function.
Any payment solution you use for your business, is going to require some collection of hardware devices, which are procured through hardware providers, but generally not directly by merchants. It’s unusual for small business owners to purchase hardware directly from hardware manufacturers. They are usually purchased as part of a larger package from payment processors and or payment application developers and dealers. Read on to learn more about these players.
Business management software developers
Software developers create programs that businesses need in order to operate efficiently. They are the technology-minded folks who think about business management from the merchant perspective and create solutions to make operating a business easier and more profitable. The software solutions they develop are often created with specific industries in mind. For example, a restaurant needs a program created specifically to catalog menu items and prices, put select items on customer tickets, send orders to the kitchen and bar, and create customer tickets for payment. Whereas a hotel needs a system capable of creating reservations, managing room vacancies, adjusting prices depending on the day, time, and availability in real time, and other hotel related functions. Each industry has unique needs, and software developers create programs to serve them.
Other software programs are built for specific tasks that most businesses perform, like employee management software that automates scheduling, tracks time attendance, and performs payroll functions, or inventory management programs capable of monitoring inventory based on sales and even submitting orders to vendors when low thresholds are met.
And software programs are needed to enable payment terminals to scan and submit card data to the payment network for authorization after a card swipe. And yet another program or add on function encrypts the data so it can’t be intercepted by cyberthieves.
In short, software programs make the hardware components function. To make an anatomy analogy, you can think of software as the brain of any hardware device, and the device itself as the body containing the brain.
Payment application developers
These are the folks who combine hardware components like computers, touch screens, and PIN pads with payment processing capabilities and the business management software applications we just discussed. They turn individual technologies into a cohesive system, often referred to as a point of sale (POS) system. It’s common for these developers to develop their own software as well. In fact, the terms could be redundant if you consider the fact that a payment application itself is simply a set of codes.
The main reason why it’s unlikely for merchants to purchase hardware directly from the manufacturer is because on their own, the individual parts won’t automatically work together. If you buy a terminal from one manufacturer, then buy a computer from another, and download a software program, there is no way to ensure that all these elements will communicate and function together. One way to get that cohesion is to purchase a POS system from a payment application developer, also called a POS provider.
Payment application developers tend to serve specific industries and offer a variety of solutions running the full spectrum of sophistication from the most basic, to the most advanced for that particular industry. Though not a hard and fast rule, a merchant looking for a payment system for their mom and pop corner store, would probably not go to the same payment application developer as an operator of a multi-lane, multi-location grocery store.
Value added resellers
Many payment application developers sell their systems through a dealer sales channel. These folks are called value added resellers (VARs) or simply, dealers. Dealers don’t create the payment applications, they sell and service them. Their value is largely in the ongoing service they provide to merchants in the form of installation, troubleshooting, repair, upgrades, and resolving technical difficulties. This can be an essential service to merchants who may not have IT expertise, and can’t afford to have a technical problem that disables the flow of business and the ability to accept payments.
Plus, many merchants view their dealers as business technology consultants who can help them assess their current operations and help them become more efficient and profitable by recommending and implementing particular technologies.
Payment processors are merchant services providers who make it possible to accept electronic payments. They are responsible for moving cardholder data through the payment network for authorization, much like a telephone network provider makes it possible to make phone calls. Processors can also provide the cohesion necessary to make hardware devices and software programs work together to process payments. Merchants who do not require full-featured POS systems can get the basic elements they need like a payment terminal directly from the processor.
Payment processors work with hardware manufacturers and payment application developers to enable their payment platform to work inside the hardware terminal and or larger payment solution. In order for a terminal to have connectivity to a payment processor, it has to have an encryption key for that particular processor. Likewise, in order for a POS system to be compatible with the payment processing services, the developer has to have an integration with the processor. Some POS systems have integrations with a variety of payment processors so that the merchant can choose the payment processing service that they want to work with. Others have proprietary relationships with processors and in order to use that particular system, you would have to work with a specific processor.
Sometimes, if a POS provider or terminal hardware manufacturer doesn’t have a payment processing integration or encryption key, they create connectivity for merchants via a payment gateway integration. A payment gateway is like an adapter so that a POS system not integrated with a particular payment processor can still connect to that payment platform.
Gateways can be great for merchants who want to use a particular payment solution and a particular payment processor that aren’t automatically compatible. But gateways can also present an unnecessary middle man and added fees for accessing a platform when processing integrations are available.
Bringing it all together
If you’re in the market for a payment solution, first think about whether you need industry or function-specific business management features. If you’re just getting started, have a simple business model, or a generic retail operation, you may not need additional merchant services beyond the ability to securely accept credit card payments. In that case, select a trusted payment processor that meets your needs and use the payment solution they recommend to you.
If you need a more customized or comprehensive business management solution, it’s to your advantage to either get a payment processor that works with the POS providers you like or get a POS provider who works with payment processors you like.
Because payment solutions and their technology dependencies are so complex, the best case scenario is one in which all the relationships described above have a long successful history of working together, supporting merchants like yourself.
Vantiv has a well-established history of providing hardware-based payment solutions directly to merchants who don’t require industry-specific business management solutions, and also supporting thousands of POS developers with highly specialized and respected integrated solutions. We have the right payment solutions for every type of business, and the technology capabilities and expertise needed to support them and help business thrive. Contact us for more guidance on finding a solution that is right for you.