Merchants Weigh In on Payment Processing

J.D. Power’s 2024 “U.S. Merchant Services Satisfaction Study” provides a detailed look at how small business owners feel about their payment processors. Published Feb. 1, 2024, the report surveyed 5,383 businesses in September through November 2023 with annual revenue of $50,000 to $20 million and processed through one of 17 leading North American providers.

Businesses accepting a broad array of payment methods were generally more satisfied with processing relationships than those accepting only credit and debit cards.

Shopify, Paysafe, and Bank of America scored highest in the study, which measured satisfaction in terms of advice and guidance on running a business, cost of payment processing, data security, account management, and quality of technology.

Practical Ecommerce discussed survey findings with Sean Gelles, senior director, payments intelligence, J.D. Power, and Mike Eckler, an advisor and independent consultant on financial technology who has worked in the digital payments industry for 20 years, having held senior positions with PayPal and Moneris, the payment processor, among other firms.

Gelles observed that the data revealed two types of small business owners: traditionalists (53%) who accept credit and debit cards, and innovators (47%) who accept digital wallets, cryptocurrencies, and other alternative payment methods in addition to credit and debit cards.

“Traditionalists in the study were an older demographic who preferred cash and checks, and innovators tended to be younger business owners who accept a variety of payment types and were generally more satisfied with their merchant services providers,” he said.

Convenience vs. Costs

Eckler affirmed that Shopify is a good fit for smaller-sized, lower-volume business owners, providing everything needed to run a small ecommerce site.

“Shopify is good because it is all-inclusive for most merchants, and their transaction fees are fairly standard for low-volume merchants,” he said. “Fees become more expensive as the merchant grows, especially for businesses with multiple employees who need to log in and operate various parts of Shopify’s system.”

Eckler further noted that large-volume merchants may find Shopify’s pricing more expensive than similar service providers. And negotiating better rates with Shopify is only possible for large enterprises, he added, advising merchants to weigh the convenience of an all-inclusive solution against Shopify’s higher monthly and per-transaction fees.

Barriers to Entry

Gelles noted that researchers identified three primary reasons merchants do not accept credit cards, debit cards, or both.

Risk of fraud or theft

Researchers found that 22% of merchants don’t accept credit cards and 21% don’t accept debit cards due to concerns about fraud and theft, Gelles stated, adding that security is clearly a priority and major concern. He did acknowledge, however, that PayPal and digital wallets (which tokenize versions of Visa, Mastercard, Discover, American Express, and ACH payment methods) provide an additional layer of security.

“It’s difficult to compromise a payment done through a digital wallet because the actual account information is provisioned and tokenized,” Gelles stated. “If someone steals the token, it’s useless to them.”

High cost of acceptance

When asked if they understood transactional rates, fees, and service charges, Gelles said 78% of survey respondents understood all of them, and 22% did not understand or only partially understood. He added the percentage of merchants who understood depended on the fee: authorization (59%), incidental (37%), assessment (35%), situational (20%), and application account setup (27%).

“The data that we’re seeing reflects a complex regulatory environment difficult for merchants to navigate,” he said.” “And there was also a hint of fatalism amongst merchants, with only 16% saying they’re surprised by inappropriate fees or charges and 84% saying they aren’t surprised by what they deem inappropriate.”

Difficulty of use

As Gelles noted, payments designed to be simple to manage are often difficult for merchants. For example, 16% of survey respondents cited difficulty of use and complicated payment process as reasons for not accepting credit cards, 14% said acceptance would take too much effort, and 12% believed processing and handling credit card payments would increase manual labor.

Gelles found it interesting that 17% of merchants didn’t accept digital wallets, and 18% didn’t accept buy-now pay-later because they thought they were difficult to use. From an implementation standpoint, he suggested that digital wallets are quite easy to set up and use and not that different from any other payment method.

Digital Wallets

Eckler observed that digital wallet providers promote the idea that adding payment options at checkout can increase conversions and satisfaction. This concept holds true, he said, especially when selling in countries where digital wallets outperform standard credit card payments. In addition, he advised merchants to take a holistic approach when evaluating, testing, and implementing digital wallets.

“Merchants should understand that accepting digital wallet payments has several costly implications, including complex technical integrations, different settlement timing, longer holds on funds, higher foreign exchange fees, and for each digital wallet offered, merchants will have different reconciliation, reporting, and risk-management systems to maintain.”

Gelles encouraged merchant service providers to build a case for digital wallet ease-of-use. “Like most other payment methods, merchants must ensure they set things up correctly with their provider. If MSPs can make that case for digital wallets, this could be a big win for all parties involved.”