Are you processing customer payments online? Are those payments secure?
If you’re like the average business owner, your answer to those questions was “Yes, obviously.” and “Umm, I think so?”
In this article, we’re going to help you answer the latter question with a lot more certainty. We’ll discuss what secure online payments are, how they work, the components involved, and best practices for improving payment security at your own organization.
What is a secure online payment?
A secure online payment is a financial transaction that is conducted over the Internet and incorporates security measures to protect sensitive personal and financial information (like credit card details and bank numbers).
It protects both payers and payees against fraud and data breaches.
How do you know if a payment is secure?
There are a few ways that your customers — and, of course, you as a buyer — can assure themselves of a secure payment system.
- SSL/TLS Encryption (HTTPS). When there is a padlock symbol on the browser address bar, and the URL begins with "https://" instead of "http://” this indicates that the site uses SSL/TLS encryption.
- Trust seals. Many websites display trust deals or badges from recognized security providers like Norton Secured or McAfee Secure to signify that the site is regularly monitored for vulnerabilities.
- Verified payment gateway. The use of a reputable payment gateway like PayPal, Stripe, or Square helps to ensure that payments will be encrypted, tokenized, and compliant with security standards.
- Two-factor authentication (2FA). The use of a second authentication factor, such as entering a one-time code sent to a trusted device, adds another layer of payment security.
What are the most secure online payment methods?
Are all online payment methods built equally?
The short answer here is no. Each secure payment system comes with its own applicable security measures and inherent pros and cons.
Credit cards
Credit card payments have a number of security protocols that can be applied, from two-factor authentication to fraud detection to encryption to chargeback protection.
While credit cards do offer strong fraud protection, they can be susceptive to breaches of the card information stored insecurely by the merchant. Stolen cards can also lead to identity theft, which is a much broader and more serious problem for the victim.
Digital wallets
Digital wallets like Apple Pay and PayPal are beneficial in that they don’t share actual card details with merchants. They also use tokenization and encryption to protect transmitted data, and can even use biometric authentication like fingerprint or facial recognition as a stronger authorization process.
This is a super secure payment method, and the only real downside here is that they aren’t accepted everywhere. Also, to take advantage of the most robust biometric capabilities, a smartphone is usually required.
Bank transfers
Transfers between banks using networks like ACH and SEPA use secure, bank-grade encryption to protect transaction details.
Some banks also require two-factor authentication. The big benefit here from a security standpoint is that there is no middleman handling your data since payments are made directly between bank accounts.
However, bank transfers take longer for funds to clear, which means they are not suitable for all kinds of purchases, especially in retail environments. There are also fewer fraud protection and chargeback options available when compared to credit cards.
Cryptocurrency
Cryptocurrencies like Bitcoin and Ethereum are rising in popularity, though they are still far from accepted everywhere.
Through their use of blockchain technology, crypto transactions and highly encrypted and nearly impossible to tamper with. They also eliminate intermediaries like banks and provide a high degree of anonymity for users, helping to protect personal data.
However, due to limited merchant acceptance and the volatility of value in a given currency, cryptocurrency is not a suitable sole payment method for many businesses and customers alike.
How does a payment service provider work?
A payment service provider (often abbreviated as PSP) is a company that acts as a middleman between merchants and financial institutions to facilitate online payments. They enable businesses to accept multiple payment methods (and offer them to buyers) such as credit and debit cards, bank transfers, digital wallets, and mobile payments.
Here’s what the typical PSP process involves:
- Transaction initiation. The customer begins the transaction by entering their payment information on the merchant’s website or app.
- Data transmission. The PSP securely transmits that payment data (using encryption) to the acquiring bank or card network.
- Authorization request. The PSP forwarded a request to the issuing bank (the customer’s bank) to confirm they have funds and authorization for the transaction.
- Decision. The issuing bank approves or declines the transactions and communicates with the PSP, which relays the response to the merchant.
- Settlement. If the payment is approved, the PSP orchestrates a transfer of funds from the customer’s account to the merchant’s account.
PCI compliance in payments
PCI is one of the most important components of secure online payments.
Payment Card Industry Data Security Standard (PCI DSS) is a set of security guidelines that were designed to ensure that all businesses handling credit card information maintain a secure environment.
It was established by major credit card brands (such as Visa, Mastercard, and American Express) to protect sensitive payment information from fraud, breaches, and theft.
While it's not a legal requirement in the same way that compliance with GDPR is, there is immense pressure on payment gateways and processors to comply with PCI DSS. If you’re processing credit card payments, your merchant agreement with the credit card companies will typically require compliance on risk of penalties, fines, and risk of access.
The consequence here essentially is that if a business processes credit card payments, it has to be PCI compliant.
Elements of PCI DSS compliance include:
- Encrypting cardholder data during transmission and storage
- Maintain secure systems and applications to protect against breaches
- Implementing access control measures so that only authorized personnel can access sensitive data
- Regularly monitoring and testing security systems to identify vulnerabilities
- Protecting cardholders by implementing password requirements, anti-virus software, and firewalls
By maintaining compliance with PCI DSS, businesses can enhance customer trust, protect their reputation, and avoid fines and penalties for non-compliance.
Why are secure payment systems so important for business?
Why is it so important that today’s companies implement secure payment systems? Or, in other words, what kinds of benefits can you expect to receive from using them?
Let’s explore.
Protect sensitive data
Businesses today handle a vast amount of sensitive financial data, especially in the form of cardholder information. Secure payment systems will help you protect this data from being compromised.
Mitigate fraud
Secure payment systems can help protect you and your customers from a variety of fraud types, including:
- Credit card fraud: When stolen card info is used to make unauthorized purchases
- Account takeover (ATO) fraud: When cybercriminals access accounts to make purchases or transfers.
- Man-in-the-middle (MITM) attacks: When hackers intercept communications to steal payment data.
- Phishing: When fraudsters trick individuals into sharing payment information.
- Data breaches: When hackers infiltrate systems to steal large volumes of payment data.
- Refund fraud: When customers submit fraudulent refund requests after receiving the goods.
Prevent financial losses
Payment fraud and data breaches can result in huge business losses.
Not only is there potential for direct losses in the form of stolen funds, but you may be liable for legal costs and penalties. There's also the lost revenue associated with customers leaving due to security concerns.
Maintain reputation
A breach in payment security can cause major damage to a company's reputation, especially if it attracts negative media attention.
This can lead to lost sales and long-term reputation damage that can be difficult to recover from.
Build customer confidence
Secure payment systems assure customers that their transactions and personal information are safe. They help build trust and make it more likely that a new customer will purchase from you.
Comply with legal requirements
Indeed, there are even some important legal requirements with which you’ll need to comply, depending on the jurisdiction in which you do business (such as compliance with PCI DSS protocols).
Best practices for more secure payments
Looking to improve the security of the payments your company is processing?
Here are nine best practices to carry forward with you:
- Implement strong encryption. Ensure that the systems you employ use SSL or TLS encryption for all transactions to protect sensitive data during transmission.
- Adopt MFA. Require multi-factor authentication for both internal staff access as well as customers accessing your platforms or submitting payments, adding an extra layer of security.
- Use tokenization. Look for a secure payment system that replaces sensitive payment information with tokens to minimize risk in the event of a breach.
- Maintain PCI DSS compliance. Ensure full compliance with PCI DSS standards and keep up to date with changes in recommendations.
- Monitor transactions. Invest in fraud detection tools to monitor transactions and detect suspicious activities in real time.
- Limited data access. Implement access controls such as role-based permissions to ensure that only authorized personnel can handle sensitive payment information.
- Regular update software. Keep your systems and software functioning well with regular updates and security patches to close vulnerabilities.
- Conduct regular audits. Make it a habit to perform regular stress tests and vulnerability assessments on our secure payment systems.
- Implement broad training initiatives. Educate staff on the importance of payment security, off tips to customers on creating strong passwords, and share fraud alerts to keep both customers and staff aware of current threats.
Offering secure payment options for customer purchases
As a company doing business online, having a secure payment system for processing customer purchases is critical.
If you can offer multiple payment options, accepting ACH payments, credit cards, and digital wallets, you’ll not only reduce abandoned carts but help customer feel secure and confident that they’re able to pay via their preferred channel.
BILL, our financial operations platform, makes it easy to process customer payments. You can accept ACH and credit card payments, track payment statuses in real time, and integrate with secure systems like Xero and Sage.
