What's the point of a payment system?
Payment systems have come a long way since the days of exchanging a few chickens for a bushel of hay, but the fundamental purpose these systems serve remains the same– to facilitate the transfer of funds between two parties. Today’s electronic payment systems include features that not only help businesses run more efficiently, but also more securely and profitably. Payment processing systems and the companies that provide them have become an integral part of a merchant’s operation.
The history of payment systems
Bartering was the first recorded method of payments, followed by trading commodities, coins, and paper currency. The early 1900s saw the first issuing of credit cards by oil companies and department stores who issued the cards to their customers. Later, the first bank card, “Charg-It” was introduced. But it was the introduction of the Diners Club Card in the 1950s that truly ushered in the modern era of payment solutions. These closed-loop cards evolved into revolving debt credit cards in the 1960s, introduced by the companies that eventually became known as Visa and MasterCard.
Handy, but awkward
As much as consumers appreciated the benefits of paying with credit, the early payment systems weren’t exactly streamlined. When a customer used a credit card, the merchant had to call a number listed on the back of the card, provide the card number and transaction information, and wait for authorization.
Merchants were also required to cross-check each credit card number with a listing of stolen card numbers to ensure the legitimacy of the card. As you can imagine (or perhaps remember), the entire process was very slow. Fraudulent charges and chargebacks were a frequent occurrence, as merchants often skipped the laborious security processes. The cumbersome nature of early payments and merchant services resulted in slow settlements and businesses often had to wait for days to be paid for credit card sales.
Birth of the POS
Three things happened in the 1970s that improved the payment solutions process immensely. First, the backbone of the payment processing system was computerized. Then the magnetic stripe was introduced, followed by electronic credit card readers, the first point of sale terminals.
Payment processing and point of sales systems truly entered the modern era when “always connected” electronic payment terminals became the norm for merchants at the turn of the millennium. The introduction of EMV chip card technology furthered the innovation in payments technology. All of these advances have led to much faster transactions and increased customer usage, along with quicker settlements for merchants with reduced fraud and related expenses.
Why advanced payment systems are critical to the economy
In 2015, nearly 400 million non-cash transactions occurred in the U.S. every day, and nearly two-thirds of those were credit and debit cards. Just imagine how long transactions would take, and the settlement risk facing merchants, if advanced technology did not handle this volume of transactions.
Fortunately, the latest payment processing systems are incredibly fast and secure, and quite capable of handling this ever-growing demand. What’s more, payments technology is being designed to meet the evolving demands of consumers and businesses, alike.
What merchants should look for in a payment system
From retail stores to fine dining restaurants, car washes to automotive shops, today’s credit card processing systems are designed to accommodate specific industries. But it’s not enough to choose a system simply because it’s touted as the perfect solution for your business type. There are other considerations to keep in mind, beginning with the following:
- A quality provider
- Sales channels
- Payment security
- Integration with other systems
- Gift and loyalty programs
The payments industry has evolved over the past quarter century, and one of the biggest changes is the role of the processing provider. No longer just a supplier of hardware that authorizes and settles transactions, a processing provider has become an important consultant who can help a merchant determine the best payment solutions to fit their sales and growth needs.
The right provider can help a merchant understand all the available sales channels and security options, and create a plan that meets current needs while paving a path for future growth and adoption of new technologies. The right provider helps ensure that a merchant makes a wise investment in a payment services.
It’s important to consider how products and services are sold, and how customers prefer to make purchases, whether in-store, on a mobile device, online, over the phone, and/or at a remote location. If you offer your goods and services instore and online, you will likely find that customers expect to be able to use most if not all of these sales channels. Remember that customers expect the sales process to be quick and easy, regardless of the channel they use.
The importance of payment security cannot be overstated. In addition to compliance with the Payment Card Industry Data Security Standard (PCI DSS), merchants are now subject to a new liability shift. Under this liability shift imposed by MasterCard, Visa and the other card networks on October 1, 2015, merchants who haven’t upgraded their POS terminals to accept EMV chip card payments can be held liable for certain fraud related chargebacks.
In addition to EMV, merchants should look for security solutions that include point-to-point encryption, which protects data in transit, and tokenization, which protects data at rest.
Merchants should also consider how the payment system will work with other business systems, such as those that handle accounting, inventory, and scheduling. Many integrated payment systems include this type of functionality, or can accommodate solutions a merchant already has in place. Integrated systems can also provide valuable information about customer behavior that can be used to improve customer service and marketing efforts.
Payment services can make it possible for merchants to access a built-in loyalty and gift card program. Gift card programs are a proven way to help grow sales, as more than 70% of card recipients spend more than the amount on the card and more than half will visit a store twice to use their card. According to leading loyalty research firm Maritz, two out of three consumers say that their choice of retailer is influenced by where they can earn customer loyalty and rewards program points.
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The future is now
While payment systems have been around for as long as humans have been exchanging goods and services, the past decade has seen remarkable advances. Electronic payments have risen to the forefront, in response to the exponential rise in non-cash transactions and doing so in a variety of manners.
The advances in payment technology not only allow merchants to process more transactions, but to do so faster and more securely, with more timely receipt of funds. Merchant services can help businesses get to know their customers better, enhance loyalty, and increase sales.
Merchants should think of a new payment card processing system as a wise investment in their business operations and growth. It’s worth the time and effort to find a payment solutions partner that can offer guidance and support in choosing the system that meets current and future needs. In today’s competitive environment, the right payments system plays a critical role in helping merchants attract and retain the most lucrative customers.