Cloud-based payment processing might seem foreign or high-tech, but businesses that accept payments online are probably already using it. Basically, cloud payment processing refers to transactions that are completed via the internet, after which the transaction data is saved to the cloud.
If you’re a business owner who is currently using a legacy point-of-sale system or an entrepreneur who is researching payments for his or her e-commerce store, understanding how cloud payment processing works—together with the pros and cons—can help you decide whether this technology is for you.
How Cloud Payment Processing Works
When we talk about cloud-based payment infrastructure—or even cloud computing in general—what we’re talking about is a particular approach to storage and access. This approach differentiates itself from a traditional POS system approach with regard to both.
In a cloud-based payment system, your record of transactions, your customers’ card information and the software that powers your global payment gateway are stored in a remote data centre accessed via the internet rather than on your business premises.
The data centres where cloud-based payment software and data are saved have very large storage capacities, making it possible to store much larger amounts of data in the cloud than the amount of data that you could store locally.
Access to information and software that are stored in the cloud is via the internet with a username and password rather than via the insertion of floppy discs, compact discs, USBs or memory cards into a computer drive.
This means that—as long as you have a stable internet connection—you don’t need to buy software to use a cloud-based payment solution. It’s simply a matter of being granted access to software that’s stored in a data centre elsewhere.
The Cloud-Based Payment Process
When a merchant uses cloud-based payments, the exact process varies according to the type of transaction (in-person, mail, telephone or online) and the payment method used. The commonality is that the payment information for every type of transaction is captured by a virtual terminal, added to the merchant’s sales data and can then be accessed and seen from anywhere in the world.
- Sarah buys a packet of cereal at your grocery store and pays in cash. You enter the product, amount, customer and payment type into your virtual terminal. This transaction is automatically added to your sales data (as well as to Sarah’s purchase history).
- Jean buys five bottles of sparkling water and taps his debit card on your near-field communication-enabled card reader to pay. His tokenised card information is routed through the card and banking networks for authorisation and the transaction is added to your transaction record and sales data.
- Maria places an order for groceries online with a total value of €150. She pays online using an e-wallet. This transaction passes through the banking and card networks for authorisation and is added to your transaction history and sales data.
While these three customers paid using different payment methods, all of their transactions were processed using the same cloud-based system, which aggregated the transaction data from each sale in real-time. This transaction data can then be accessed by authorised account holders from anywhere in the world.
Benefits and Risks of Cloud-Based Payment Processing for Merchants
Merchants have a lot to gain by processing payments through the cloud. The sheer processing power and convenience of this technology are reflected by the fact that 86% of bankers are now using cloud services to some degree.
Benefits of Cloud-Based Payments
- Cloud-based payment systems come with a much lower upfront cost for merchants than locally based point-of-sale software and hardware systems.
- Payment data from online orders and physical store locations are aggregated in real-time.
- Merchants can view transactions from every sales channel simultaneously as they occur.
- Merchants can generate detailed sales reports to help them make strategic business decisions.
- Businesses can process high payment volumes without slowing the system down.
- Cloud-based systems allow you to keep on-device and cloud-based copies of your data.
- Cloud payment processing protects merchants and their employees from losing cash to physical theft.
- It’s easy to integrate a cloud-based payment processing system with existing cloud-based inventory management, customer relationship management, logistics management and accounting software programs.
- Cloud-based payments allow you to scale your business without needing to buy additional hardware.
- Cloud-based end-to-end payment processors keep you up to date with the latest software updates, bug fixes and digital payment methods without any need to reinvest.
- Cloud-based processors usually offer a wide range of merchant services in addition to payment processing to help you grow your business.
Cloud-Based Payment Risks
Joining the many others in the payment ecosystem who are using cloud infrastructure does come with risks, although most of these risks can be mitigated.
- A security breach could leave your business and customers’ data exposed to fraudsters.
- A cloud outage or blackout could leave you without any data and unable to process payments.
- You need a stable internet connection to process payments using the cloud.
- With so many businesses switching to the cloud, a higher carrying capacity is required to prevent the system from slowing down.
- If you have customers who pay with cash or cheque, you still need a cash register and security protocols for preventing in-store theft.
To mitigate these risks, it’s essential to use strong passwords, restrict access to the account, save important data to your computer, have manual payment systems available as a backup and minimise the amount of cash that’s held on-site. For security, you can also use a private cloud that’s partitioned off rather than using the public cloud for your processing system. Solutions for raising data carrying capacity and speed include the use of Ethernet (this is the most efficient option) and/or 5G IoT networks.
Cloud-Based Payment Processing – Your Gateway to Growth
For small, medium and large-sized businesses, cloud-based payments offer near-unlimited processing power at a minimal cost. Compared to on-site systems, adopting cloud-based payments saves on-site storage space, gives you access to payment processing and transaction data wherever you happen to be and reduces the risks of losing your data to fire or theft.
When planning for success with a cloud-computing approach, look for a payment provider with robust security mechanisms and a dynamic approach to fraud prevention for merchants. Then, before taking your new system live, implement a manual backup payment processing system so that you can keep processing payments during a (rare, but possible) system outage.