Small business 101: How to choose the right and secure payment method

• A secure payment method protects the customer's payment details and confirms that the person paying is who they say they are. It does this through four main safeguards: encryption, tokenization, strong authentication and fraud monitoring.

• Credit cards and digital wallets are among the most secure options for everyday purchases. Credit cards offer strong legal protection against fraud, while digital wallets like Apple Pay and Google Pay replace card numbers with tokens and use biometric checks.

• Cards are now the most popular way to pay in the US. According to the Federal Reserve, credit and debit cards account for two-thirds of all payments made by US consumers, so accepting them is essential for most businesses.

• The right payment methods depend on your customers, costs and technology. Businesses should offer the ways their customers prefer to pay, understand the fees involved, and use flexible payment technology that makes it easy to add new methods as habits change.

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Getting the funds from your sales into your account is crucial for your small business. It impacts your cash flow and helps you grow and scale - but how you take payments from your customers is changing.

Choosing the right payment method for your small business is a crucial decision that can greatly impact both your operations and customer satisfaction. With a wide variety of payment methods available that cater to both in-person and online businesses and payment technologies continuing to evolve, it can be overwhelming trying to decide which one best suits your specific needs.

In this blog post, we will guide you through the process of selecting the ideal payment method for your small business, focusing on the most commonly used options. 

Whether you’re a brick-and-mortar store, an e-commerce venture, or a hybrid of both, we’ll explore the key considerations you’ll have and provide insights into the different options that are out there - so you can make an informed decision about the payment system that’s best for your business. We'll also explain what makes a payment method secure, and which options offer the strongest protection.

A secure payment method protects the customer's payment details and helps make sure the person making the payment is who they say they are. It does this through four main safeguards: encryption, tokenization, strong authentication and fraud monitoring.

1. Encryption scrambles payment data as it moves between the customer, merchant and payment providers. If someone intercepts it, they can't read the information.

2. Tokenization replaces sensitive card details with a unique code called a token. If a fraudster steals the token, it's useless to them - because it can't be reused or traced back to the original card.

3. Strong authentication adds another check to confirm the payer’s identity before the transaction is completed. This could be a PIN at a payment terminal, a fingerprint or face scan on a phone, or a one-time passcode during an online checkout. Biometric checks are secure, but customers still need to trust them - our own research found that only 37% of US consumers trust companies to protect their biometric data.

4. Fraud monitoring looks for unusual activity that could indicate fraud. For example, if a card is used in two different countries within an hour, the payment can be flagged or blocked before the transaction goes through. 

For most everyday purchases, credit cards and digital wallets are among the more secure options. They combine strong payment security with customer protections if a payment turns out to be fraudulent.

For businesses, secure payments come down to how payment data is handled and how transactions are checked. Any business that accepts card payments needs to meet PCI DSS requirements for handling card data.

It also helps to keep sensitive card details out of the business's own systems. Tokenization replaces the card details with a token as soon as they're captured, so the original data doesn't need to be stored. Fraud monitoring adds another layer by checking transactions for unusual activity and flagging suspicious payments.

There are a variety of payment methods you can choose for your small business, including:

Cash: This is of course the traditional way of paying. Taking cash payments does bring with it some advantages as you won’t pay any fees for your transactions like you do with credit cards for example. You also get your funds immediately without having to wait for it to clear in your account. One of the downsides of cash is that you open yourself up to human error when you or your staff accept it. The use of cash is also dwindling since the pandemic, with many consumers preferring alternative methods.

Cheques: This might be an outdated method of payment for many consumers, but a lot of business-to-business transactions still occur via cheque. It’s a super simple method of payment to accept as all you need is a merchant bank account where you can pay the cheque into – you can also pay cheques online via your bank’s app too. The real downside with cheques is the time they take to clear, which is often a minimum of four working days.

Card payments: There's no doubt about it, the pandemic changed the way consumers pay. In fact, according to the Federal Reserve, credit and debit cards now account for two-thirds of all payments made by US consumers. 

Allowing your customers to pay by card brings a range of advantages. First and foremost, you’re giving your customers their preferred method of payment, which means you’re not missing out on valuable sales. Secondly, cards provide a smooth checkout process whether in person or online. Consumers can also put larger transactions on their credit cards for example, which gives you the potential for bigger sales across a broader demographic.

The downsides of card payments are the fees you pay, the potential for chargebacks and the card being declined. Fraud is also a key issue with card payments, which is why security measures like tokenization and fraud monitoring are so important.

Digital wallets: This has become the in-person payment method of choice for many customers and involves them tapping their phone on your point of sale (POS) system. The most prevalent include Google Pay and Apple Pay. This payment method can be an issue for some small businesses, due to the number of wallets available and the time and expense it can take to integrate them. However, digital wallets are one of the most secure ways to pay, because they use tokenization and ask the customer to confirm payments with a fingerprint or face scan.

Online payment gateways: If you’re accepting payments online, a payment gateway enables your customers to pay on your eCommerce website. In some instances, this will be directly on your site where they simply use their card to pay. In other instances, it may redirect them to a third-party site like PayPal. Not sure what to look for in a payment gateway? Our guide to choosing the right payment gateway covers the key things to consider.

Buy Now Pay Later: Alternative payment methods like Buy Now Pay Later (BNPL) are becoming more and more popular, especially amongst Gen Z consumers (link to 2023 trends article). When paying online, a consumer will select a BNPL method such as Klarna and choose to pay in instalments – usually three. As a retailer, you will need a relationship with Klarna to get this set up.

With BNPL you get paid immediately by the provider rather than in instalments. The advantage of BNPL is that your customers may be more willing to make bigger purchases if they have the option of splitting it across several payments.

Cryptocurrency: This is a payment trend that can’t be ignored, with more and more bigger businesses starting to accept it. If you’re in an industry where crypto payments have or are becoming the norm, it’s a payment method you’ll need to consider. And it does bring key advantages. You’ll pay lower transaction fees, have instant settlement times, enjoy a reduction in fraudulent chargebacks, and have access to an affluent and growing customer base.

ACH debit: Whilst not ideal for retailers making one-off sales, ACH debit is perfect for subscription services or ongoing B2B relationships. It is simple to set up and ensures you get paid on time without the hassle of chasing your customers. Plus, you can manage your cash flow better if you know you have regular payments coming in.

Different payment methods use different security measures, so there isn't one option that is always the most secure. 

• Credit cards offer some of the strongest fraud protection for customers. In the US, federal law caps a customer's liability for fraudulent charges at $50, and most card issuers go further with zero-liability policies. Customers can also dispute charges for goods that never arrived.

• Digital wallets such as Apple Pay and Google Pay are among the most secure options. They use tokenization to replace the card number with a token, so the merchant doesn't receive the customer's actual card details. They can also require the customer to verify a payment using a fingerprint, face scan or device passcode. 

• Chip and contactless cards use the chip in the card to create a unique code for each transaction. This makes payment details much harder to copy and reuse than the magnetic stripe data used by older cards. 

• Debit cards and bank transfers can also use strong security measures, including authentication and fraud monitoring. However, the level of protection available if a payment is fraudulent can vary depending on the payment method, bank and country. Plus, because they draw money directly from the customer's bank account, fraudulent payments often leave the customer out of pocket while the bank investigates.

So, what is the best payment method for small businesses? It depends on your business and your customers. When choosing the right payment method for you, you’ll want to consider the following factors:

Your customers: What is the chosen method of payment for your customers? If you’re operating online do they want PayPal and BNPL alongside card payments? When dealing with a Gen Z demographic, for example, alternative payment methods are essential. For an offline business, do you choose to accept cash payments at all? Or would your customers rather simply use cards or a digital wallet?

Remember, your customers are the lifeblood of your business. It’s crucial to make payment easy for them, and in a way that they’re used to.

The cost: What fees do you need to pay to accept a certain type of payment? What are the charges for credit card payments with your bank for example? What fees will you need to pay for BNPL providers? These are key questions to answer and evaluate as adding costs into the mix of course impacts your bottom line.

You’ll also need to think about the cost of technology for your business. If you’re taking payments at the point of sale via debit card or digital wallets, you’ll need technology that can seamlessly handle both with ease.

The ease of integration: How easy is it to integrate new payment methods into your payment process? Does it require working with a third-party supplier? Can you do this through an API with your existing payment orchestration software or do you need to set up a separate process? Again, these are big factors.

Security: How does your chosen payment method impact security? Are you opening yourself up to fraud with card payments for example? It’s essential to work with payment providers that offer fraud protection.

As a small business owner, you have a big decision to make when it comes to choosing the right payment method for your business. But this can’t be a static decision. Payment methods change, as does consumer desire for new and alternative methods. If you don’t move with the times, you could be left behind. This requires flexible payment orchestration software that enables you to simply and effectively add new payment methods into the mix, whether online or in-person.

For more insights head to our newsroom, and more information about in-person payment orchestration discover our unique platform.