The Ultimate Guide to Integrated Payment Systems
Table of Contents
Are you tired of dealing with fragmented payment systems that require tedious and error-prone manual data entry? How about losing revenue due to payment reconciliation mistakes? In today’s digital-first world, many merchants and software companies are adopting integrated payments to avoid problems like these.
An integrated payment system can automate workflows, eliminate manual data entry, and make compliance much easier to manage. It’s no exaggeration to say that payment integration is one of the most valuable merchant services available.
Here, we’ll be walking you through the ins and outs of integrated payment systems: how they function, their business use cases and benefits, how to choose the best system for your needs and implement it effectively, and much more. If you’ve been looking for a way to streamline your payment workflows, unlock significant time and cost savings, and even reduce your fraud risk, this guide is for you.
What Are Integrated Payment Systems?
As the name implies, integrated payment solutions connect all the different pieces of a company’s payment infrastructure, turning it into a unified digital interface. With integrated payments, your point-of-sale (POS) systems, payment gateways, accounting software, and other parts of your payment ecosystem are all connected to each other in real time.
As soon as a customer makes a purchase, it’s automatically reflected in your general ledger — whether it was in one of your brick and mortar stores, or through an e-commerce platform.
By contrast, traditional payment systems are siloed, so the various pieces of your payment infrastructure can’t communicate with each other. This means someone has to manually reconcile every single payment — which is a massive inconvenience, a drain on resources, and a source of costly accounting errors.
How Integrated Payment Systems Work
An integrated payment system functions like a well-designed highway system. Different payment methods are the cars, and the payment system is the network of on-ramps and freeways that smoothly guide the cars along, avoiding congestion and ensuring safe and fast transactions.
Typically, an integrated payment looks something like this:
The customer makes an online purchase, or buys something in a brick and mortar store using a payment terminal.
The customer’s payment information is securely routed to a payment processor for authorization.
Upon settlement, the funds are transferred to the company’s account, and the transaction details are automatically postedto its general ledger.
Connecting these three steps into one seamless process eliminates the need for monthly payment reconciliations, on top of making payments safer and faster for businesses and customers.
Integrated payment systems also provide a consistent and streamlined experience across all of a company’s payment channels — which is important for maintaining your customers’ loyalty and trust.
Components of an Integrated Payment System
What are the various pieces of an integrated payment system? Integrated payment solutions have several key components that work together to maximize transaction efficiency:
- Payment Gateway: Securely sends the customer’s payment information from the business to the payment processor.
- Payment Processor: Authorizes, approves, and settles the transaction.
- POS System: Allows merchants to receive payments in-store and automatically updates their inventory and accounting software after each sale.
- Merchant Account: Securely holds funds until they’re transferred to the company’s primary bank account.
- Subscription billing: Seamlessly handles subscription billing workflows for SaaS or subscription companies.
- Software integration: Automatically syncs all of a company’s payments with other parts of its tech stack, like accounting software and CRMs.
- Fraud prevention tools: Tokenization, encryption, 3D Secure, and other fraud prevention measures help protect companies and customers from fraud.
Each piece of an integrated payment system plays a crucial role in creating connected, efficient, and fraud-resistant transactions.
Types of Payment Integration
There are three main types of payment integration, and together they allow companies to efficiently handle in-person, mobile, or e-commerce payments.
POS Integration
An integrated POS system acts as a digital bridge connecting your payment processing hardware — card scanners, chip readers, receipt printers, and so on — with your back-end software. When businesses integrate their POS system with the rest of their tech stack, they can automatically record transactions and update inventory records the moment a sale is made.
Mobile Payment Integration
With integrated mobile payments, your customers can make fast, simple, and safe purchases from their smartphones or through mobile apps. Given the popularity of mobile payment options like Google Wallet, Apple Pay, and PayPal, this can open up valuable revenue opportunities for merchants.
Online Payment Integration
Online payment integration enables merchants and software companies to accept online or e-commerce payments. Third-party processors like Stripe or Square are integrated with a company’s app or website, encrypting each transaction to protect personal data and cardholder information. This makes it easier for merchants to comply with PCI protocols and other payment regulations.
All three types of payment integration work together to help businesses safely accept the widest possible range of payment methods.
Benefits of Integrated Payment Systems for Businesses
What benefits do merchants gain from integrated payments?
Between their ability to improve operational efficiency, their advanced fraud protection measures, and the improvements they bring to the customer experience, integrated payments have become a vital part of the business landscape.
Streamlined Payment Processing
From payment initiation to settlement, an integrated payment system provides immediate and automatic payment processing. This helps companies lower their days sales outstanding (DSO), which is an important metric that measures how long it takes to receive payments. The lower your DSO, the faster you get paid — the end result is a boost in your cash flow and an increase in working capital.
Manual payment processing introduces the very real possibility of delays and transaction errors. If you rack up enough of those, your cash flow will suffer and you’ll have a hard time meeting your financial obligations, like payroll or vendor invoices. Integrated payment processing keeps everything running smoothly and helps businesses avoid those kinds of problems.
Enhanced Data Security and Compliance
For software providers and merchants alike, integrated payment systems can streamline compliance with Payment Card Industry Data Security Standards (PCI DSS). The PCI DSS protocols require companies to protect valuable cardholder data and payment information, such as:
- Credit card numbers
- Expiration dates
- Security codes
Remember, even one slip-up involving payment information can result in stiff non-compliance fines — not to mention a severe drop-off in customer trust.
Thanks to automatic data encryption, integrated payments are a great way for businesses to safeguard their customers’ payment details and avoid significant compliance fines. And speaking of security, integrated payment systems help businesses protect themselves with advanced fraud detection features like device fingerprinting and real-time transaction monitoring.
Improved Customer Experience
Integrated payments offer customers a smoother, faster, and more convenient checkout experience that supports credit cards, mobile wallets, contactless payments, and other popular payment methods.
This is extremely important, since more and more transactions are occurring online. If a customer is having a difficult time buying something from your website — or if they can’t use their preferred payment method — there’s a fair chance they’ll just backtrack to Google and see where else they can make the purchase.
In addition to that, when payments are integrated into a company’s main ERP software, suddenly the business has an automatically updated record of customer purchases and buying habits.
Businesses can use that data to create customer loyalty programs that reward repeat purchases, and even to personalize customers’ shopping experiences and product recommendations. This leads to more revenue for merchants and software companies, and helps your customer base feel a personal connection to your brand.
Real-Time Transaction Reporting and Analysis
Another major benefit of integrated payment systems is the ability to analyze your transactional data in real time. When they handle payments manually, companies with large transaction volumes might have to wait 3 to 5 days for full transaction reports to become available. This can get pushed back even further when weekends and bank holidays are factored in.
Today’s companies need to be nimble in their financial reporting and analysis, and delays can interfere with strategic planning in a big way. By contrast, integrated payments give software companies and merchants access to real-time payment analytics:
- Detailed daily, weekly, and monthly transaction reports
- Behavioral analytics that shed light on customers’ buying habits
- Segmentation data that can help with upselling and cross-selling
- Transaction fee analysis to assist businesses in their cost-cutting efforts
Integrating your payments can supply your business with a wealth of valuable transaction data you wouldn’t have otherwise.
How to Choose the Right Integrated Payment System
A well-selected integrated payment system can save merchants and software companies significant time and money. However, payment systems are never one-size-fits-all, and it’s important to ask the right questions to establish the best possible fit for your unique circumstances.
You need to start by asking questions such as
What does your monthly transaction volume look like?
What’s your budget, and what kind of pricing model are you looking for?
Are there specific payment features that are particularly important to your business?
So, what exactly goes into choosing the right integrated payment system, and how can you be confident in your choice?
Evaluating Your Business Needs
For merchants and software companies, it’s crucial to select an integrated payment system that aligns with your current operational needs.
For instance, if you’re a larger SaaS organization, you’re probably going to prioritize systems that can rapidly handle domestic and global payments at scale. On the other hand, if you’re a smaller company, you might prioritize simplicity and low costs above everything else.
Another key element is your customers’ preferred payment method or methods. These days, customers tend to prefer the convenience of streamlined payment methods like PayPal, digital wallets, or even text-to-pay. Knowing your business needs inside and out and planning accordingly can help you choose the best payment solution for your individual circumstances.
Key Features to Look For in an Integrated Payment System
What are the most important features to have in an integrated payment system?
- Multi-channel payments: Make sure you can smoothly accept in-person, online, and mobile payments. This is a huge selling point for consumers today, and companies that can’t take multi-channel payments can expect to lose business to those that can.
- Subscription billing: In light of the ever-growing subscription economy, both software organizations and merchants should opt for integrated payment systems that support recurring and subscription purchases. This is also a great way to create a predictable ongoing revenue stream.
- Advanced anti-fraud features: After added costs like shipping, processing fees, and chargebacks, merchants stand to lose significant amounts of money on fraudulent orders. Make sure that your payment system has features like algorithmic fraud detection and transaction encryption to protect your business.
- Customizable financial reporting: Real-time business insights are becoming essential for merchants and software companies. Choosing a solution that offers immediate updates and customizable reporting is the key to having the data you need when you need it.
Also, be sure to select a system that seamlessly integrates with the other pieces of software in your tech stack.
Comparing Costs and Pricing Models
It’s important for merchants and software companies to choose a payment system with a pricing model that makes sense for their circumstances. Some of the most popular include:
- Interchange-plus: A detailed statement is supplied for each payment that includes interchange fees alongside a separate markup from the payment processor. This is a great option if transparency is your top priority.
- Fixed rate: A flat rate is applied to every card transaction, regardless of the type of credit card the customer used.
- Tiered: Tiered pricing splits payment card fees into three categories depending on perceived risk. Non-qualified cards incur the highest fees, with mid-qualified cards being less expensive, and qualified cards being the least expensive to process.
When comparing different solutions, be mindful of any fees associated with them. These can range from monthly access fees to a one-time setup fee, chargeback fees when a customer disputes a charge to their card, fees for international transactions, early termination fees, and others.
Steps to Implementing Integrated Payment System
Once you’ve purchased an integrated payment system, you have two things left to do before you’re up and running. First, you need to integrate it into your existing tech stack, and then provide a training period to help your employees get acclimated.
Both of these steps are crucial for ensuring that you achieve long-term success with your new payment system. Let’s look at each of them more closely.
Integration With Existing Systems
Merchants usually have robust tech stacks full of different software solutions — accounting software and ERP systems, CRM tools, inventory management systems, POS tools, and many others. When you’re doing your due diligence on different payment integration tools, make sure they can integrate with what you already have in your tech stack.
What questions do merchants need to ask when integrating a payment system with their existing tools?
- Does the system feature pre-built connections and API integration capabilities, and does the provider charge for integration services?
- Are any third-party platforms — known as middleware — required to integrate the system with your tech stack? If so, how much will they cost?
- Are the integrations compliant with local and international regulations meant to protect consumers’ data, like PSD2 or GDPR?
Remember, the whole point of an integrated payment system is to enable instant communication between your payment software and the rest of your tech stack. That’s why this step is crucial.
Employee Training and Support
Why is proper employee training so important for successful payment integration? Going the extra mile to train your employees on your new payment system will help them:
- Quickly and efficiently handle different types of transactions to provide a positive checkout experience.
- Address common payment problems like refunds and declined charges.
- Ensure that customers’ transactions remain secure, avoiding any PCI compliance mishaps.
Choosing a payment integration provider who offers top-tier support and customer service is also essential when deploying payment integration software. Merchants need to be able to easily contact their payment provider to quickly resolve any training or operational problems, or simply to clear up lingering questions.
Common Challenges and How to Overcome Them
What challenges can merchants and software companies expect to encounter when adopting integrated payments?
Concerns regarding security and compliance
Given the importance of PCI DSS compliance, any shortcomings in payment security can create serious problems for merchants and software companies. The best way to get around this is to carefully assess the security features of any payment integration system you’re considering using.
Look for advanced features like algorithmic fraud detection, robust transaction encryption, and access controls for stored payment information.
Data migration hurdles and downtime
Especially for large businesses with significant amounts of data to transfer, the migration process can be tricky when switching to integrated payments. It can also result in lengthy stretches of business downtime, or even compliance violations if you’re not careful.
That’s why it’s essential to select a payment provider who offers start-to-finish migration assistance — from the initial consultation to data mapping and cleansing, and who runs tests throughout the migration process to ensure that everything is going as planned
A lack of long-term scalability
Merchants’ payment needs change as their businesses grow and evolve. Today’s small businesses often end up becoming tomorrow’s large enterprises. A well-chosen integrated payment system should give companies room to grow into the software.
You may not need robust international payment capabilities right now, but if you need them in two to three years and your system doesn’t support them, you’re back to square one.
Future Trends in Payment System Integration
What does the future of payment integration look like for merchants? Some of the most noteworthy trends taking shape at the moment include:
AI and machine learning: AI and machine learning algorithms are enabling increasingly effective anti-fraud and risk management capabilities. Predictive AI will continue to allow more sophisticated forecasts about consumers’ buying patterns, allowing merchants to create a hyper-personalized shopping experience.
Blockchain technology: By eliminating banks from the transaction process, blockchain technology can unlock faster and much less expensive payments.
Embedded payments: By embedding payments directly into their company’s app or website, merchants can give customers a way to place orders quickly and securely without leaving the original site they were on. Embedded payments will only continue to grow in popularity and importance as online and mobile transactions keep expanding their foothold.
Frequently Asked Questions (FAQs)
What questions do merchants and software companies find themselves asking about integrated payments?
Below are some of the most common and important FAQs to keep in mind:
What is an integrated payment system, and how does it work?
An integrated payment system is a software solution that allows all the different parts of a payment system to communicate in real time. This streamlines the entire payment process, beginning with payment acceptance all the way through to settlement and reconciliation, without the need for human interference.
Can integrated payment systems improve my business's transaction security?
Yes, absolutely. With advanced security features like transaction encryption and robust access controls restricting who can see cardholder information, integrated payment systems offer superior security over manual transactions.
What types of businesses benefit the most from integrated payment systems?
Any business stands to benefit from integrated payment systems, but they’re especially useful for merchants that handle large transaction volumes or international payments.
How long does it take to implement an integrated payment system?
On average, it can take anywhere from a few weeks to a few months to properly deploy an integrated payment system. If a company requires complex custom integrations, the timeline could expand to a few months.
Are there additional costs associated with maintaining an integrated payment system?
Depending on the payment provider, ongoing costs could include integration fees, occasional security updates that may or may not be complimentary, and fees for maintaining PCI compliance, to name a few.
It’s important for merchants to carefully assess the ongoing costs of any system they’re considering purchasing.
How do integrated payment systems handle multi-currency transactions?
Integrated payment systems use real-time exchange rates to automatically convert the payment currency into the merchant’s base currency. When making a purchase, the customer will automatically see the item’s price in their local currency.
Final Thoughts: Why Integrated Payment Systems are Essential for Modern Businesses
For merchants and software companies seeking to gain a competitive edge, integrated payment systems are a great way to do so. By integrating their payment infrastructure into a unified system, companies can streamline business operations, meaningfully enhance the customer experience, and even improve the health of their cash flow.
To learn more about what integrated payment systems can do for your business, contact the MSG Payment Systems team today.
