Simplifying Small Business Online Payment Processing in 2026

Understanding Small Business Online Payment Processing

Before identifying which small business payment processing options are right for their businesses, business owners should understand how online payments and the payment processing cycle work, from transaction initiation to payment collection.

How Small Business Online Payment Processing Works: The Payment Processing Cycle in 3 Steps

When a customer makes an online purchase — through a variety of online payment methods for small businesses — the same basic process, called the payment processing cycle, occurs behind the scenes to exchange money and complete the transaction.

1. Transaction Initiation

The online payment process begins when a customer initiates a transaction. They put an item (or more) in their virtual cart and enter their payment information (credit card details and billing information) on the checkout page.

2. Authorization Process

Once the payment details have been entered and the purchase submitted, the payment gateway (i.e., a service that securely transmits payment details) encrypts the payment information and transaction details before forwarding them to the payment processor.

Next, the payment processor sends the details of the transaction to the issuing bank (i.e., Visa, Mastercard, etc.) to verify that the card’s details are valid and the funds are available. At this point, the issuing financial institution either approves or declines the transaction. Transactions can be declined as a result of insufficient funds, invalid card details, or potential suspicious activity. Once the payment processor receives the issuing bank’s response, it relays the approval or denial to the merchant.

3. Settlement Process

Usually, at the end of a business day, the payment processor batches all of the day’s approved transactions together and processes them in a single batch for increased efficiency. At this time, the payment processor initiates a funds transfer from the customer’s issuing bank and transfers the funds (less any transaction fees) to a merchant account (in the business’s name).

Once the transaction has been finalized, both the merchant and the customer are notified and should see the transaction reflected in their account records.

With small business online payment processing, business owners can either manually transfer funds out of their merchant accounts into their bank accounts, or they can set up automatic transfers. Typically, immediate funds transfers incur an additional fee for the expedited service.

Handling Chargebacks and Returns

Most transactions will be complete after settlement. However, sometimes, customers return items or dispute charges on their cards. The process for both is fairly similar for all types of small business online payment processing.

When customers return items, according to a merchant’s return policies, they will need to refund payment through the payment processor to the customer’s issuing bank.

In dispute cases, the issuing bank will notify the merchant of the chargeback and include a reason code that indicates why the charge is being disputed. These codes can indicate fraud, unauthorized activity, or an item not being as described. The issuing bank will temporarily hold the disputed funds, and the merchant will have a limited time to respond with evidence (proof of delivery, proof of authorization, or proof of a refund).

Through the dispute process, the issuing bank collects evidence from the customer and the merchant and decides either to uphold the charge (reverse the chargeback and release funds) or uphold the chargeback (merchant loses the funds and might incur additional fees).

Small Business Payment Processing Options: Choosing the Right Payment Processor

When choosing a payment processing provider and merchant account provider to facilitate your small business online payment processing, there is a lot to consider, such as your business’s needs, your customers’ preferences, the types of online transactions you need to process, and how much you can afford to spend.

Evaluating Your E-Commerce Business Needs

Consider all of your digital payment processing needs, including in-store and online. If your business accepts limited forms of payment, then it could be missing out on sales.

So, when you begin setting up your online payment processes, it might make sense to pair those services with in-person digital payment options through a virtual terminal or digital point of sale system, as well. Many merchant services providers and payment processing services offer both payment processing solutions.

Payment Solutions: Online Payment Methods for Small Businesses

After assessing and defining your small business online payment processing needs, you can begin considering the various online payment methods for small businesses and identifying options that will work for your business.

Small business owners should look for the online payment methods for small businesses that will best integrate into their operations and financial management systems.

Online payment methods for small businesses include:

• Credit card payments and debit card payments
• Digital wallets and mobile payments 
• Payment service provider platforms 
• Direct debits or ACH payments (ideal for recurring billing, recurring payments, and larger transactions)
• Buy now, pay later services 
• QR codes
• Text-to-pay
• Electronic invoices

There are several types of online payment methods for small businesses for small business owners to choose from. Plus, there are plenty of different payment service providers, merchant service providers, and financial institutions offering these products. This means that the process of sifting through all of the payment processing options for small businesses can be challenging, but also that there is likely a provider out there offering exactly (or almost exactly) what your business needs.

Payment Processing Options for Small Businesses: Comparing Payment Processing Companies and Pricing

Businesses can choose from a variety of services, products, and packages offered by different payment service providers, merchant service providers, and financial institutions, like TowneBank.

When considering the type of provider you choose, consider the payment processing options for small businesses that they offer, the quality of customer support and service they provide, the pricing structure, their payment processing fees, your average sales volume, average sale total, and your total estimated costs.

Popular Payment Processing Companies for Small Business Payment Processing

You’re likely already familiar with some of the most popular and widely used payment processing companies. While some of the best payment processors might charge pretty steep fees, others offer high-quality services and packages at more affordable prices for small businesses. When selecting a payment processor to facilitate your business’s online payments, we recommend thoroughly evaluating their pricing, convenience, ease of use, system integration, and customer service.

Fees and Charges Associated With Payment Processing Options for Small Businesses

PSPs often charge a variety of different fees, which can vary and fluctuate based on the product, package, or level of service you sign up for.

PSP payment processing options for small businesses often include a combination of the following fees and charges:

• Setup fees
• Subscription-based pricing
• Monthly fees
• Flat-rate transaction fees
• Percentage-based transaction fees
• Blended transaction fees
• Card network fees (including Interchange, assessment, card scheme, and switch fees)
• Chargeback fees
• Foreign transaction fees

Additionally, many payment system providers charge penalties for terminating services before the end of a contract. So, you will want to be sure that you fully understand all of the potential costs involved with a provider before signing up for their services, so you don’t incur any unexpected, hidden fees that are outside of your budget.

While this sounds like a lot of potential costs, many of these providers offer more affordable options with free trials and pared-down services that appeal to small business owners who are looking to expand online sales and digital payment options without making a major commitment to a large monthly fee.

When considering all of these small business payment processing options and deciding whether you want to use a payment service provider, merchant services provider, or the cost-effective products and services offered by TowneBank, we can talk with you about your different options and explain everything that is available to you with your business’s account.

We will get to know your business and its needs to help you determine which small business payment processing options will fit into your operational model, operations budget, and workflow.

Best Practices for Small Business Online Payment Processing

When implementing new small business online payment processing options, businesses should follow a set of best practices to streamline the checkout process online and in-person with digital payments and contactless payments, ensure smooth internal operations, and create a safe and secure environment for the sensitive information needed to conduct online transactions.

Evaluate the Security and Compliance of Small Business Payment Processing Options

Before choosing the small business online payment processing provider that’s right for you, thoroughly vet the security standards of the company you will be using. Choosing a provider with high security standards will protect your customers and your business from cyberattacks, data breaches, reputation damage, and loss.

At a minimum, the small business payment processing option you choose should have built-in features to enhance transaction security for online payments. This should include security features like encryption, fraud protection and detection, secure networks, tokenization, multi-factor authentication, and thorough compliance with the Payment Card Industry Data Security Standard (PCI DSS).

Additionally, business owners should shore up their own systems with the proper firewalls, network security, encryption, password protection, employee training, and access control.

Testing Online Payment Methods for Small Business

When available, make use of free trials and sandbox environments within different online payment processing options for small businesses. These features give you the option to test how user-friendly the interface and reporting features are while also testing functionality, so you can ensure the products, platforms, and features work how you expect and need.

This will help you satisfy your customers while also supporting a streamlined checkout process with data that fully integrates into your accounting software.

Challenges and Solutions in Small Business Online Payment Processing

Offering new small business payment processing options can be complex, and so, the process naturally comes with some challenges. TowneBank’s personal bankers can help guide you through the process and connect you to the right resources and information to ensure the smooth implementation of new payment systems.

However, being aware of the pitfalls that small business owners commonly experience when integrating new online payment methods for small business can help you avoid mistakes and overcome obstacles if they arise.

Overcoming Common Challenges With Small Business Online Payment Processing

All types of payment processing options for small business can be challenging to implement properly, and these are some of the common challenges and pitfalls experienced by small business owners during the process.

IT Security and Compliance Concerns With Small Business Online Payment Processing

Business owners accepting online payments must satisfy industry standards by ensuring PCI DSS compliance, meeting encryption standards, and minimizing fraud risks.

Online Payment and Reporting Integration Issues

Many of the most popular platforms are designed to integrate seamlessly and easily. However, some businesses struggle with embedded payment processors or accounting software reporting. Access to customer support and technical support can help you address these challenges.

Managing the Cost of Small Business Payment Processing Options

Business owners must thoroughly evaluate the costs of implementing new online payment methods for small businesses. Before choosing a service, be sure you clearly understand the fees and consider whether you might need to adjust your prices to maintain healthy profit margins to cover higher operating costs.

Satisfying Customer Preferences With the Right Selection of Small Business Payment Processing Options

As payment technology advances, new small business online payment processing options and methods will arise. For example, biometric payments and virtual cards are already in the works and gradually gaining popularity.

Small business owners must find a balance between their business needs, technological advances, and their customers’ preferences to ensure they keep up with trends in small business payment processing options, without changing their operations too frequently.

Expand Your Business and Streamline the Customer Checkout Process With Small Business Online Payment Processing

At TowneBank, our business members have access to a robust suite of small business online payment processing tools supported by our mobile app and online business banking. We can explain our products and services to you and talk with you about the additional payment processing options for small businesses that you might consider. 

The small business processing option that’s best for your business will largely depend on your business’s needs, goals, and budget. We can help you weigh all of the payment processing options for small businesses so you can choose the payment methods and provider that’s best for your business.