Payment Apps and Processors
Sending and accepting payments can be tricky. There are a lot of options out there, so we'll help guide you. Things to consider when looking into accepting/sending payments are: 1) transaction costs 2) ease of functionality 3) app integrations on your phone.
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What Is a Payment App?
A payment app is a tool to pay for goods and services and send money to vendors, friends, and family. People tend not to carry as much cash nowadays, so a payment app can be a quick way to reimburse a friend for a concert ticket, help a family member out with a bill, or even pay for something at a store without having your wallet with you. It’s like having a digital wallet with you on your phone.
How Does a Payment App Work?
A payment app works like a digital wallet. You link your bank account information and credit cards to the app, and it securely stores it so you can use it to send and receive money directly on the app. You don’t need to have your wallet physically with you, and some apps can even be used internationally. It’s a quick and convenient way to send and receive money and pay for things online and in stores.
How Much Does a Payment App Cost?
Some payment apps are completely free, while others have free aspects like receiving money or sending money between friends and family. Some payment apps may charge fees to receive money quicker than the standard time, currency exchange and processing fees, and credit card fees. These fees vary based on the type, amount, and location of the transaction.
You may be charged between 2.5–3% for credit card processing fees when using some payment apps. If you’re a small business, you can add these fees into the cost of your goods and services or charge an additional fee for customers to pay with a credit card.
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Is a Payment App Worth the Cost?
Free payment apps are worth using because there’s no cost, and they’re convenient and easy to use. However, if you have to pay to use the payment app, it may or may not be worth the cost. If you’re a small business that accepts credit cards, it’s usually worth it because you’re increasing your number of customers by accepting additional payment forms.
If you need to send money internationally or need your funds available the same day, you would need to find out the fees, weigh your options, and then see if it’s worth it to pay a little more for the convenience.
PayPal is the granddaddy of payment companies, with a history going back to 1998. It made its name as the preferred digital wallet and payment provider for eBay transactions but has since grown to be one of the most dominant names in online payments.
PayPal offers the ability to transfer money to and from any U.S.-based bank account and many foreign accounts. There is no fee to transfer funds to family or friends from a PayPal balance or bank account balance, but PayPal does charge fees to send from a credit card or convert currencies.
Venmo is actually owned by PayPal, however, Venmo is a very different app than PayPal. Venmo is an app designed primarily to send money to friends, with an embedded social aspect. And, while you can sign in and access your account on the internet, it is a mobile first experience built primarily for use on the go with your smartphone.
Venmo has 60 million active users. That's a lot of restaurant checks split. Venmo can also be used to pay for transactions at many businesses as well. It is free to send money using your linked debit card bank account.
Cash App is a mobile credit card processor–Square’s answer to the growing popularity of peer-to-peer payments. Cash App does pretty much the same thing as Venmo, but without the social features. You can send money to, or request from, anyone with a Cash account, and funds are drawn from a linked bank account via debit card at no cost.
Cash App has a wallet feature, like PayPal, or the ability to send from a linked account without holding funds in your digital wallet. In 2018, Square added the ability to buy and sell Bitcoin on the Cash App as well, which gives it a unique feature compared to other popular payment apps.
Zelle offers a unique way to pay friends or family right from your bank. If you have an account at a participating bank, you can send cash with same-day transfers to anyone else with an account at a participating bank. The growing list of participating banks includes titans such as Chase, Bank of America, Citi, U.S. Bank, Wells Fargo, and online banking leaders, Ally and Capital One.
You can send without installing the app on your phone, though you can download Zelle’s app and connect to your bank account, too. It is free to send and receive. You can only connect one bank account to your Zelle profile at this time, so if you sign up, make sure it is with your primary account.
Google offers a tool to do almost everything one can do online, and sending money is no exception. Google Pay is unique in its integrations with other Google products, including Gmail. Yes, you can send money to someone by e-mail using Google Pay and Gmail. If you have a Google account, you are essentially already signed up for Google Pay.
Like most Google products, it is well designed and easy to use. It works with the dedicated Google Pay app or through other integrated Google services. There are currently no fees to use Google Pay.
What is a payment processor?
A payment processor is a company that manages the credit card transaction process, acting as a kind of mediator between the bank and the merchant. Put simply, the payment processor communicates information from your customer’s card to your bank and the customer’s bank. Assuming there are enough funds, the transaction goes through.
There are a broad range of fees associated with payment processors, including start-up fees, transaction fees, chargeback fees, termination fees, and lease charges for credit card processing equipment (generally, the third-party payment processor provides the equipment you use to accept card payments, including the credit card machines). However, if you want to accept credit or debit card payments from your customers, there’s really no other option.
Bear in mind that “payment processor” isn’t a universal legal term, and in some cases, it’s used interchangeably with terms like “payment service provider” or “acquirer”.
Payment gateway vs. payment processor vs. merchant accounts
Of course, payment processors aren’t the only significant part of the payments process. You also need to understand the role of payment gateways and merchant accounts.
So, what’s a payment gateway? Essentially, payment gateways are like middlemen between the third-party payment processor/merchant account and the credit card companies. It’s a type of software that handles the technical side of transferring cardholder information. If you don’t have a payment gateway, then you won’t be able to receive payment from your customers, even if all the other elements are in place.
And as for merchant accounts? Put simply, a merchant account is a type of bank account that accepts credit and debit card payments. If you don’t have a merchant account, you won’t be able to accept these types of payment, so it’s incredibly important that set one up when starting your business and creating a business bank account.
As you can see, it’s not really a case of payment gateway vs. payment processor vs. merchant accounts. To successfully manage the payments process, all these elements need to be included. The payment gateway handles the transfer process, the payment processor authenticates and secures the transaction, and the merchant account is where the bank settles the funds, before they’re paid into your business account.
(sources: thebalance.com, consumerreports.org, gocardless.com)