What Is Payment Processing?  

Payment processing is vital to operate in today’s fast-moving business climate. But what exactly does it entail? Is it a worthwhile addition to your home services business? 

Learn how this system for handling online financial transactions can benefit your business. Moreover, see how it provides a valuable service for your customers.  

What Is Payment Processing, and How Does It Work?  

Simply put, payment processing is the act of digitally transferring money between one entity and another. For home service providers, that’s usually a payment from the client to the business.  

Payment processing typically involves three general steps:  

1. Authorization  

2. Verification  

3. Settlement  

A variety of systems are used in online payment processing. You may be familiar with these from your own personal finances:  

• Debit cards  
• Credit cards  
• ACH (automated clearing house) transfers  

• EFTs (electronic funds transfers), aka bank transfers  
• Digital wallets (card information stored in one central source)  
• Mobile payments (tap and go)  
• Cryptocurrencies  

FROM ONE OF OUR PARTNERS: The Future of Online Payments: What You Need to Know  

Payment processing may seem simple to the average customer—and it should be. But there are actually multiple parties and steps involved:  

• The client initiates payment, usually with a debit or credit card or digital wallet. 
• The service provider (you) accepts the payment. 
• The customer’s financial institution or credit card backer validates and authorizes the transaction. 
• The acquirer, usually a bank or credit union where the merchant (you) has an account, accepts the payment. 
• The payment method is usually a card or digital wallet. 
• A card network is needed if a card is used. 
• A POS (point-of-sale) system where the customer initiates the payment. This could be a website or mobile app (e.g., Square or Stripe), sometimes combined with a payment gateway. 
• The payment gateway takes information from the POS to the payment processor. 
• The payment processor, a third-party company, handles the technical aspects of the transaction. This includes authorization, sometimes combined with a POS system and/or payment gateway.  
• Payment security components, like PCI DSS (Payment Card Industry Data Security Standard), protect against fraud. 
• Settlement and reconciliation is where all the numbers are squared and updated on each end. This is also where a receipt is issued.  

Payment processing makes operations infinitely easier for all kinds of businesses. That includes home services providers. It assists with cash flow and improves customer satisfaction. And it can reduce fraud risk, too. More on that below.  

Think of payment processors like a shuttle. They handle the logistics of your business transactions. They go between the elements above to execute the transaction, often within seconds. If you’re going to accept debit and credit card payments from your home services clients, they’re essential.  

RELATED ARTICLE: How Field Service Companies Can Improve Cashflow with Digital Payments  

What’s the Difference Between a Standalone Payment Processor and an Integrated Software Suite?  

A standalone payment processor is only for handling financial transactions between a service provider and a customer. It’s a quick solution to taking payments on-site and online. 

However, some comprehensive business management software suites include payment processors. An integrated system can make payment processing and record-keeping much more seamless. 

Say you own a plumbing business with 10 employees. A payment processor integrated with your other home service business software may be the better solution. All your technicians can accept customer payments at their homes. They can also access payment records along with other job details. 

Additionally, you may be able to import that data for financial reporting. You can send invoices to clients and often get paid faster.  

4 Payment Processing Features Every Home Service Business Needs  

So, once you’ve determined that a payment processor is essential, what features should you look for? Here are four elements that home service providers will find beneficial:  

Diverse payment options  

You should at least be able to accept debit cards, credit cards, and digital wallet payments. Perhaps you want more alternatives depending on your client base. For example, clients may want to pay with a bank transfer if you do expensive home renovations.  

Ease of use  

Your technicians are plumbers or HVAC experts, not accountants. You want them to be able to get up and running with digital payments after a quick training. And you don’t want them running into problems when a client is trying to pay after a job.  

FROM ONE OF OUR PARTNERS: Offer Your Clients Simple Ways to Pay  

Reasonable Cost  

We’ll dive into fees more below after reviewing how merchant accounts function. But you want payment gateways, POS systems, and payment processors. You also want to combine them in a way that fits within your overhead budget.  

Fraud Protection  

You want protection against cybercrime built into your entire transaction process. Otherwise, you could be putting your customers and your business at risk of a data breach or fraud. Identity theft is another concern.  

Ensuring Customer Security When Accepting Payments  

There are a few digital security elements every payment processor should offer. As mentioned above, whenever you accept a payment, you want it to be safe for you and your customers. Otherwise, your home services business could be in trouble.  

Imagine a customer’s bank or credit card data was stolen. This puts their finances at risk and creates huge hassles for them. You might have to file a cyber insurance claim or pay a private settlement.  

Security breaches for a small home service provider could even put them out of business. Would you go back to a business that allowed your personal or financial data to be stolen?  

More than half of the people surveyed said they would not continue working with businesses that have had a cybersecurity breach. Could your small business survive losing half its customers? Your reputation and your financial stability could be ruined.  

You might be tempted to think that only large companies are the targets of cybercrimes. However, nearly 50% of all online crime in recent years has been against companies of 1,000 employees or fewer.  

Therefore, you should look for these digital security elements when choosing a payment processor:  

• Encryption to protect data that’s accidentally or intentionally accessed  
• Regular software and hardware updates to keep up with technology and cybercrime trends  
• EMV (Europay, Mastercard, and Visa) chip compatibility when combined with a POS system to limit fraud  
• CVV (card verification value) checks also to prevent fraud and charge-backs  
• Transparent refund and charge-back policies to protect all parties involved  

What Is the Difference Between a Merchant Account and a Payment Gateway?  

You may have seen the term “merchant account” used in discussions about payment processing. How do payment gateways differ from merchant accounts?  

The payment gateway is the intermediary between you and the customer. It sends encrypted payment data to your merchant account for further processing.  

The merchant account is a special type of holding account. It lets you take digital payments via debit and credit cards. It takes the customer’s information received from the payment gateway. Then, it moves the money from the customer’s financial institution to yours.  

Merchant accounts can be structured in different ways with various fee schedules. They usually involve banks and credit card companies, like Mastercard and Visa.  

Which Payment Processing Pricing Structure Is Right for Your Home Services Business?  

Above, we mentioned how payment processors charge different fees based on various structures. Sometimes, these fees include POS devices if you’re not using your own device, like your mobile phone. And don’t forget, the merchant account can take a cut, too.  

How do you choose the best one as a field service provider? Let’s look at different pricing structures in a little more depth. Narrow down payment processors for your unique business. Then, use this information to make a final selection.  

Type	How It Works	Pros	Cons
Interchange-plus	You’re charged an interchange rate plus a markup that’s a percentage, a fixed amount, or both.	It can be less expensive overall, especially if your business has a high sales volume.	You may see different interchange rates for every transaction. This may make budgeting and record-keeping confusing.
Flat rate	You pay a single payment processing rate for all transactions.	This model gives you predictability and transparency.	You might wind up paying more in total in return for simplicity and convenience.
Tiered	This structure combines flat rate and interchange-plus models. Rates are sorted into categories, with different costs for each tier.	It’s a happy medium between the two other fee schedules. You get some predictability with more competitive pricing.	The overall cost is higher than interchange-plus, although not usually as costly as flat-rate payment plans.

A Few Final Considerations  

Keep these things in mind when exploring payment processors for your home services company:  

• You may have to request a quote for pricing rather than getting the fees off the processor’s website.  
• Rates can vary widely based on when payments are made, the size of your business, etc.  
• Online transactions tend to cost more. This is because there is more fraud risk associated with them.  
• You may have to use a proprietary device for a point-of-sale terminal. This can add to your payment processing expenses.  
• Different payment processors tend to cater to specific industries. What works for an e-commerce company may not work for a home services provider.  
• If you are in certain industries regulated by state or federal law, your choices of payment processor may be limited due to the risk involved.  
• Some payment processors insist you use their merchant account. Others let you choose your own. Typically, using your own merchant account is most economical.  
• You might be required to pay a cancellation fee if you sign with one payment processor and then decide to switch to another.  
• How quickly you get paid after transactions depends on the payment processor and the merchant account. The risk assessed for your particular business is also a factor.  

How Online Payment Processing Benefits Home Services Providers  

If you’ve been in business awhile, you may remember when everyone paid with checks or cash. But those days are gone.  

Younger customers and tech-savvy older ones demand online or digital payment. You want customers to be satisfied with their experience from start to finish. To do that, you need to offer digital payment processing.  

Digital payment processing is beneficial for everyone. Here’s why:  

• It keeps customers happy because they have a convenient way to pay.  
• It makes your technicians’ jobs easier once a project is finished. This helps with employee satisfaction and retention.  
• It reduces fraud risk when done properly. This safeguards both your customers’ data and your business’s reputation.  

• It helps you get paid faster. Performing the entire transaction online with an efficient process takes seconds. 
• Do you use integrated home services business management software? You can connect payment data with other functions for metrics and reporting.  

RELATED ARTICLE: How Online Payment Platforms Can Benefit and Grow Your Home Service Business