Subscription model businesses of all shapes and sizes are taking steps to optimize online payment processing to provide a seamless customer experience, as well as make internal processes more efficient. New state-of-the-art payment processing models are replacing old point-of-sale merchant PCI systems, with more versatility and features, as well as accommodations for new payment processes, recurring revenue, and alternative payment methods such as PayPal, ApplePay, and Venmo.
Online payment processing builds on the traditional model, with different kinds of functionality that make payment processes easier, faster, and more straightforward.
In global online credit card payment processing and similar systems, there are essentially three parties.
There is a merchant who is selling something, the customer who is paying for it, and the third party is the technology itself.
Some people look at this type of three-party system as the “devil’s triangle,” especially if it leads to excessive latency and one party keeps the other parties waiting for any length of time, as every millisecond counts when it comes to processing online payments.
Modern point-of-sale technology is different, though, in that it happens very close to real-time. Those payment transactions only take a few seconds—if that—so we tend to forget that there is actually an elaborate process behind getting merchants paid by customers. In reality, payment processing has to navigate a complex financial network and get a myriad of things done, quickly.
So let's look inside this process a bit.
First, there are the gateways and the processors.
An online payment gateway sends the request to the processor.
The processor does the transaction with the issuer's bank and the customer's bank. Conceptually, some of this work involves tying the monetary amount to a particular good or service being sold. Then the processor has to get the transaction approved, debit the customer's bank (or make sure that that amount is debited), and then add funds to the merchant’s bank. That’s it in a nutshell—but other intermediate steps often apply, too, and systems have to be set up differently to handle different types of accounts, payors, and payees.
In order to do that in a PCI-compliant way, the system has to be set up with certain standards including encryption, point-of-sale security, verification tools, and much more.
Before we talk about the benefits of online payment processing, let's explore how companies use alternative payment methods in ways that weren't possible prior to the last couple of decades.
Bank verification automation is becoming the norm. Platforms like PayPal and others help users to achieve quick and easy transaction processes. Instead of merchant services that have to use PCI card data systems for every single transaction, digital payment facilitators basically set up a pre-authorized account for a user that claims are made against, eliminating the redundant process of doing checks on every single transaction at the point of sale.
Another benefit of online card payment processing models centers around repeat business.
Any time someone is going "back to the well" to make another transaction, online payment processing systems make that a lot easier as well.
When you're looking at these types of online payment processing systems, it's a good idea to understand the most common providers in the industry, what they do, and why it's important.
One well-known player in the space is PayPal. PayPal handily addresses many of the pain points in the traditional process and makes the surrounding processes extremely easy. A merchant has the ability to embed PayPal in their own site or send customers to PayPal to facilitate a transaction. On the customer’s side, the process is so simple that they can do it with a couple of clicks over a mobile phone.
Anyone who remembers the traditional credit card information processing forms of the internet circa 2010 can appreciate how things have evolved.
Another online payment processor with an excellent interface is Stripe, which is quickly becoming a challenger to PayPal with its suite of payment processing tools.
So if PayPal is great for beginners, and Stripe is user-friendly, what are some other special-use online payment processing companies?
One is Square, a software version of an online payment processor that's great for brick-and-mortar retailers at the point of sale. Square fits into a model where the cashier can use a device to ring up the customer in person. That might seem basic, but essentially, it's the architecture behind the plug-in that is the most impressive part of what Square does. The back-end verification, again, does away with the need to fully vet transactions the old way, with PCI checks.
Subscription models used to be relatively rare, but with the cloud revolution and other changes, everything is going the way of subscriptions from music to cars to household goods. Companies are realizing that instead of trying to authenticate single transactions, they can charge customers by the month and get a flat fee every month. This monthly recurring revenue and the ability to accurately forecast growth and scale based on that recurring revenue is what has made the subscription model so attractive. You could say that subscription pricing is an excellent predictive transaction model, where individual transactions are the old-fashioned way of doing business.
Recurly is widely recognized as the best online payment processing system for subscription model pricing.
With Recurly, the merchant and the customer do not have to go back month after month, re-authenticating the same details in order to accomplish transactions. The Recurly platform involves setting up a model that is made for recurrent billing, where subscriptions are charged based on the cadence set in the subscription plan.
Again, Recurly does a lot of the work behind the scenes with gateways, processors, and other parties like associations, issuer banks, and customer banks. That money has a particular trajectory that it needs to take to make the transaction happen. When you have a third-party online payment processing provider in play, all of this can happen quickly and conveniently for those first two players—the seller and the buyer.
To think about this in a more granular way, Recurly is integrated into a company’s payments ecosystem, combining elements of subscription management and billing in a solution that supercharges the client’s ability to grow business. Through pursuing ease of use in taking on new customers, signing them up for subscriptions, and billing predictably (as we discussed), this online payment processing provider does two things: first, modernizing the process, and second, changing the metrics of the average transaction, for measurable ROI and success over time. The platform itself is an example of how better subscription management generates positive outcomes.