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10 Challenges Faced by SMBs in Online Payment Processing

Updated: June 18, 2024

Written by

Murad Jaffery

man making online payment image for merchant services


Introduction The payment industry is currently experiencing exponential growth on all sides. Since 2018, the global value of online transactions has undergone a constant increase up to the tune of over $4.2 trillion. Statistics also has it that there are more than two billion online shoppers in the world. Thanks to the coronavirus and the ensuing lockdown, these numbers have quadrupled. And a significant number of the payments made for these purchases are done through credit and debit card payments. These figures indicate that even small businesses are assured of a reasonable sales quota and online payment processing. Invariably, these merchant services providers will undoubtedly serve a significant portion of the population of online shoppers and will need to process payments via different channels. Clearly, small businesses may not have to constantly deal with huge online transactions and payments like their larger counterparts. But they definitely face a lineup of other challenges in making the most of online payment systems. These challenges include, but are not limited to:

1. Data and Platform Security

Unfortunately, data security during payment processing is something small businesses have little or no control over. Since your customers get to input their data on third-party websites, you really cannot determine what happens with such data. However, when there is a security breach concerning your customers' personal or financial data, the consequences will always be on your business. To ensure that your customers' details are always securely collected, stored, and processed, your credit card processor must adhere to PCI DSS standards. Reliable processors, such as Square, are always PCI compliant. Let your partner present relevant licenses, certificates, and proof of compliance to security standards before committing to them.

2. Limited Integration

Ideally, online payment processing ought not to be treated as a self-standing system. It is to be synchronized with other business platforms (like accounting, CRM, and ERP systems) for the smooth running of your business. But then, these integrations often come with a significant cost implication –especially for companies with small upfront capital. Consequently, most small businesses are not able to access platform integrations for online payment processing. This lack of integration often results in erroneous transaction data records, loss of information, and process inefficiencies. The way out is for small businesses to negotiate the cost of accessing built-in API with their preferred processors. With API, they can easily customize the payment platform for tailor-made integrations and at a reduced rate.  

3. Processing Fees

Because processing fees are usually charged on a transaction basis and not at once, their impact on businesses typically goes unnoticed. However, it is one of the significant devourers of business profit, especially for small businesses. Most credit card and online payment processing firms also charge the same processing rates for small and large businesses. As such, these rates can very much encroach into the profit margin of small businesses faster than they would for large companies. Also, some of these fees are subject to impromptu changes. Small business owners may not have enough capacity to modify the prices of their goods and services to accommodate changes in processing fees. Invariably, the business may bear the extra cost of processing payment for a particular commodity until markups can be implemented. To solve the challenge of processing fees, compare the processing rates of different online payment processing companies, and ideally work with a partner that charges a flat fee, such as Stax. When you finally choose a company, engage them, and rightly ascertain if there would be an increase in their rates in the future and other hidden charges. Also, find out what conditions can prompt such an increment. 

4. Multiple Channel Support

As a small business owner, you should be able to accept payments from different channels. Suppose you currently run an eCommerce store, and you're accustomed to online payment gateways0. What happens if you have to attend and sell your products and services in a physical event like an exhibition or expo? And what if, as a brick-and-mortar store owner, you have customers who cannot shop from your physical store needing your products? Using multiple vendors will definitely not be a cost-effective choice. The way to solve this challenge is to look for a payment gateway that offers multiple payment processing. Such platforms will be more convenient, faster, and cost-effective for your business.

5. Fraudulent Activities

Fraudulent transactions are usually the consequences of a breach in data security. When cybercriminals get access to your customer's financial details, they can initiate unauthorized transactions that ruin your business's reputation. There are also cases of shoppers using stolen cards and other people's financial information to shop on your platform. As a small business owner, you can easily get looped into these fraudulent activities. To deal with this challenge, you could devise a means by which each customer's issuing bank can request additional verification details from shoppers before approving a transaction. Also, ensure that you audit your credit card processor or payment gateway as often as possible. They can also provide additional security like P2PE, tokenization, and fraud alerts. You also need to ensure that your platforms and software are constantly up to date and no gaps in your website security.

6. Lack of Control on Check-Out Interface

As a small business owner, you will most likely be at the receiving end of the repercussions of utilizing a third-party payment gateway. Given the financial and infrastructural implications of hosting your payment gateway, outsourcing to third-party processors is the most convenient option for you as a small business owner. While outsourcing your checkout page to a third party may be cost-effective, it may not be favorable for your business. For one thing, you'll have little or no control over your checkout process. The checkout interface presented by your payment gateway may also not be intuitive and user-friendly. This can indirectly affect your sales volume and customer return rate. While nothing can really be done about a platform created by a third party, you can try to liaise with your gateway provider to negotiate the standard and features of the checkout page.

7. Multi-Currency Payment Processing

Even small businesses can establish their client base in countries other than their locations. They can also choose to process currencies other than their local currencies. However, the challenge comes when these businesses seek out and select payment gateways that process foreign currencies. First of all, currency exchange can be quite costly. You may not be able to shoulder its accruing costs as a small business owner. Also, systems that process foreign currencies must comply with banking and security standards prevalent in both countries. In the long run, multi-currency payments can quickly cost a small business a significant portion of its profit. To deal with this, look for credit card processing companies with the most convenient rates for foreign exchange. You can also provide premium services to your customers and have them bear the cost of the foreign exchange.

8. Software Purchase and Maintenance

The cost of purchasing and maintaining the software and equipment required for payment processing can sometimes be too much for small businesses. Some credit card machines, card readers, POS terminals, and pin authenticators often come with price tags that are incoherent with the up-front capitals of small businesses. The subscription costs of many payment processing software can also eat into the financial margin of most small businesses. Consequently, small businesses can opt for payment processing software that does not require a substantial financial commitment for a start, such as Leaders. Some companies also provide this equipment for their customers on some non-monetary conditions. You can look out for such companies to cut down costs for your business.

9. Inadequate Support

Receiving adequate support from your mobile credit card processing company can very quickly become a feat. Most payment processing packages that are suitable for large businesses are often accompanied by dedicated customer support. But with small businesses, it is an entirely different game. They're usually left with the general backing, which may or may not be available throughout their merchant business hours. The way around this challenge is to engage your payment processor and ask as many questions as possible about their payment processing services. You can also request or ensure that there are videos, tutorials, and training sessions you can always refer to in the event of a support agent's unavailability.

10. Chargebacks

Chargebacks here do not strictly refer to the amount of money returned to a customer when you fail to deliver their requested goods or services. This challenge has to do with the guarantee financial institutions request before underwriting to open a merchant account for small businesses. As a small business, your business capital may not be as elaborate as your larger counterparts. Financial institutions will be taking on more significant risks with your merchant account. Now, suppose you happen to lack or dwindle in your ability to deliver timely services to your customers. In that case, you'll likely be incurring more chargebacks on your business. Furthermore, settling a payment dispute is also a time-consuming process. This means that your funds will most likely be tied down for a given duration, and this can grossly affect your business's cash flow. Also, chargebacks are usually tied to unauthorized transactions, dissatisfaction with purchases, and pricing and delivery issues. When you keep having recurring cases of either of these issues, you'll be diminishing your reputation and losing the trust of your customers. To deal with chargeback issues:
  • Opt for a secure and reliable online payment processor,
  • Clearly state your return and refund policy on your website,
  • Incorporate proper tracking and signature confirmation upon receipt of goods or services,
  • Understand your card processing company's refund policies,
  • Give your customers prior notice before deducting any recurring charges from their cards.


As a small business owner, many different challenges can possibly confront you in the process of accepting payments for your goods and services. One crucial way to avoid these problems is to look out for them as you decide on the payment gateway and credit card processing system to use. You can also prevent these problems by ensuring that your services are top-notch and delivering your words to your customers.

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Murad Jaffery

Murad Jaffery is a chartered accountant specializing in the field of accounting and finance. He has been writing on these areas for nearly a decade, and is also an accounting tutor. He holds master’s degrees in accountancy and English literature. Murad enjoys traveling and reading.