Understanding Payment Systems for Small Businesses

June 25, 2024

Ori Levy

Head of Business Development

Payment systems encompass a wide range of technologies and processes designed to enable the seamless exchange of funds between businesses and their customers – and small businesses today are increasingly reliant on efficient, secure systems to drive growth. 

From traditional credit card processing solutions to cutting-edge digital wallets and online payment gateways, the landscape of payment systems is continuing to evolve. Understanding the intricacies of payment systems is therefore crucial for small business owners looking to optimise their operations, enhance customer experiences, and ultimately improve their bottom line.

In this blog, we’ll delve into the world of payment systems for small businesses, exploring key concepts, best practices, and emerging trends. Whether you’re looking to set up an online store, expand your international reach, or streamline your invoicing process, join us as we explore the ins and outs of payment systems and discover how they can benefit your small business.

What Are Payment Systems?

Payment systems encompass a variety of technologies, processes, and infrastructure that facilitate the transfer of funds between individuals, businesses, and financial institutions.

At their core, payment systems serve as the backbone of commerce, enabling businesses to accept payments from customers and process transactions seamlessly. These systems play a crucial role in supporting economic activity by providing a secure and efficient means of exchanging value in various forms, including cash, credit cards, debit cards, electronic funds transfers, and digital currencies.

Payment systems can be classified into different categories based on their functionality and scope. One common classification is based on the method of payment:

Cash PaymentsCard PaymentsElectronic Funds Transfers (EFT)
Traditional cash transactions involve the physical exchange of currency or coins between buyers and sellers. While cash payments are still widely used, especially for in-person transactions, they are gradually being supplemented by digital payment methods.Card payments involve the use of credit cards, debit cards, or prepaid cards to initiate transactions. These payments are processed electronically and typically require the use of a card reader or payment terminal to capture card information and authorise transactions.Electronic funds transfers enable the transfer of funds between bank accounts electronically. This includes transactions initiated through wire transfers, online banking platforms and mobile banking apps.
Digital WalletsOnline Payment GatewaysRecurring Billing / POS
Digital wallets, also known as mobile wallets or e-wallets, store payment card information and allow users to make payments digitally using their smartphones or other mobile devices. Popular digital wallet platforms include Apple Pay, Google Pay, and Samsung Pay.Online payment gateways facilitate e-commerce transactions by securely transmitting payment information between the customer’s web browser and the merchant’s website. A payment gateway supports various payment methods, including credit cards, debit cards, and digital wallets.In addition to these primary payment methods, there are also specialised payment systems such as recurring billing systems for subscription-based businesses and point-of-sale (POS) systems for retail establishments.

Payment Gateway vs Payment Systems: Are They the Same?

Payment gateway and payment systems are two integral components of the broader financial infrastructure that enables businesses to accept payments from customers. While they are closely related, they serve distinct functions in the payment process.

Payment GatewayPayment Systems
A payment gateway is a technology platform that acts as a bridge between a merchant’s website or point-of-sale system and the financial networks that process payments. It securely transmits payment information, such as credit card details or bank account numbers, from the customer’s device to the merchant’s payment processor. 
The gateway then facilitates the authorization and processing of the transaction, encrypting sensitive data to ensure security throughout the process. Essentially, a payment gateway enables businesses to accept payments online or in-person by providing a seamless and secure payment processing experience for both merchants and customers.
Payment systems refer to the broader ecosystem of technologies, processes, and infrastructure that enable the transfer of funds between parties. Payment systems encompass a wide range of components, including payment gateways, card networks, banks, processors, and regulatory frameworks. They facilitate the exchange of value in various forms, such as cash, credit cards, debit cards, electronic funds transfers, and digital currencies. 
Payment systems play a fundamental role in supporting economic transactions and commerce by providing the necessary infrastructure for businesses to send, receive, and process payments efficiently and securely.

While payment gateways are a crucial part of payment systems, they are not synonymous. Payment gateways are one component of the larger payment system ecosystem, specialising in facilitating online and in-person transactions for businesses. In contrast, payment systems encompass a broader array of technologies and processes that govern the movement of funds and enable financial transactions to occur seamlessly across different channels and platforms.

How Does a Payment System Work?

A payment system is a network of institutions, processes, and technologies that facilitate the transfer of funds between parties. Here’s how it works:

  • Initiation: The payment process begins when a customer initiates a transaction, such as making a purchase online or in-store.
  • Authorization: The customer’s payment information is transmitted securely to the merchant’s payment gateway, where it is authorised by the payment processor.
  • Processing: Once authorised, the transaction is processed by the payment gateway, which communicates with the customer’s bank and the merchant’s bank to transfer funds.
  • Settlement: The funds are transferred from the customer’s bank account to the merchant’s bank account, typically within a few business days.
  • Confirmation: Both the customer and the merchant receive confirmation of the transaction, completing the payment process.

Payment systems can vary depending on the payment method used, such as credit cards, debit cards, digital wallets, or bank transfers. However, the underlying principles of security, authorization, and settlement remain consistent across different payment systems.

How Can I Choose the Best Payment Processor for My Small Business?

Choosing the best payment processor for your small business requires careful consideration of these five core factors:

  1. Compatibility: Ensure that the payment processor integrates seamlessly with your existing systems, such as your e-commerce platform or point-of-sale system, to streamline operations.
  2. Pricing: Evaluate the pricing structure of different payment processors, including transaction fees, monthly fees, and any additional costs, to find an affordable option that fits your budget.
  3. Security: Look for a payment processor that prioritises data security and compliance with industry standards to protect your customers’ sensitive information.
  4. Features: Consider the features offered by the payment processor, such as support for multiple payment methods, recurring billing, and mobile payments, to meet your business needs.
  5. Customer Support: Choose a payment processor that provides responsive customer support and technical assistance to address any issues or concerns that may arise.

Is It Expensive to Partner With a Payment Processor?

The cost of partnering with a payment processor can vary depending on several factors, including your business size, transaction volume, and the services you require. However, partnering with a payment processor doesn’t have to be expensive, especially for small businesses.

Remember, when considering the cost of partnering with a payment processor, it’s essential to weigh the benefits against the fees. A reliable payment processor can help you streamline your payment processes, improve cash flow, and enhance the customer experience, ultimately contributing to your bottom line. Get in touch with the team and Fibonatix to discuss your options. 

Whether you’re processing payments online or in-store, choosing the right payment processor is essential for small businesses to succeed.
At Fibonatix, we understand the unique needs and challenges of small businesses, which is why we offer tailored card processing solutions designed to support your growth. Contact us today to learn more about how our payment processing services can benefit you.