Introduction
As lending operations become more complex, the need for robust and reliable payment processing solutions grows. Payment processors play a pivotal role in shaping the borrower experience and ensuring operational efficiency. A well-chosen payment processing partner can make or break a lender’s ability to provide smooth, reliable, and secure transactions.
In this guide, we’ll walk you through the key strategic considerations to keep in mind when evaluating payment processing solutions. This isn’t just a feature checklist—it’s a comprehensive framework to help you choose the right partner to meet your business goals, enhance borrower satisfaction, and ensure seamless loan management.
1) What Matters Most to Lenders in a Payment Processor
When evaluating payment processors, several factors must be prioritized to ensure the solution fits seamlessly with your operations and meets your business needs.
Speed and Reliability
- Real-time Processing: Ensure the processor supports fast, real-time transactions for both loan disbursements and repayments.
- Fast Settlements & Uptime Guarantees: Look for guaranteed settlement timelines and high uptime to avoid any disruption in your operations.
Compliance & Security
- AML & PCI DSS Compliance: Make sure the processor follows Anti-Money Laundering (AML) regulations and meets PCI DSS standards for handling payment data.
- NACHA Compliance: Particularly for ACH transactions, your payment processor should comply with NACHA guidelines to ensure secure and efficient processing.
Support for Diverse Payment Flows
- Loan Disbursements & Scheduled Payments: Your processor should handle a wide variety of payment types, including disbursements, recurring payments, and partial repayments.
- Early Payoffs: It should also accommodate borrowers who wish to pay off loans early, without penalizing them or disrupting your payment processes.
Omnichannel Borrower Experience
- Web, Mobile, Call Center, In-person: Ensure the processor offers flexibility in payment methods, whether borrowers are paying via a web portal, mobile app, call center, or in person.
Operational Efficiency
- Auto-Reconciliation & Smart Routing: Look for automation in the reconciliation process to save time and reduce manual errors. Smart routing of payments helps streamline payment processing across different channels.
- Dashboard Visibility: A real-time, comprehensive dashboard allows you to monitor all payment activity, providing insight into trends and operational bottlenecks.
Scalability
- Growth Across Products and Regions: Your payment processor should be able to scale as you expand into new products, regions, or regulatory landscapes, helping you keep pace with business growth.
II. Strategic Considerations When Evaluating Vendors
Choosing a payment processor is a strategic decision that affects the entire business. Here are several factors to consider:
Specialization in Lending
- Why Domain Knowledge Matters: A processor with deep knowledge of the lending industry will understand the nuances of your operations, such as managing payments for different loan types and regulatory concerns.
Customization & Integration
- APIs & Webhooks: Ensure the processor offers flexible APIs and webhooks for seamless integration with your Loan Management System (LMS) or Loan Origination System (LOS).
Customer Service Levels
- Support Availability: Reliable customer service is essential—make sure the processor has robust support for troubleshooting, especially when transactions don’t settle or borrowers face payment issues.
Pricing Transparency
- Understanding Fees: Look for clarity on interchange fees, monthly fees, and any potential hidden costs, which can significantly impact your bottom line.
Data and Reporting
- Real-time Insights: The payment processor should provide robust data and reporting features, offering real-time insights, chargeback tracking, and exception handling tools for better decision-making.
III. Choosing the Right Model for Your Business
When evaluating payment processing solutions, consider the following models to find the best fit for your lending operations:
All-in-One Platform vs. Best-of-Breed Components
- All-in-One Platform: This option offers a comprehensive solution for managing all aspects of payment processing, but may lack flexibility.
- Best-of-Breed Components: Integrating specialized components from different providers can offer more flexibility, but may require more management and coordination.
Hosted Checkout vs. Embedded Workflows
- Hosted Checkout: A hosted solution involves redirecting the borrower to a third-party payment page. This may simplify setup but limits customization.
- Embedded Workflows: An embedded solution integrates the payment process directly into your platform, allowing for more control over the user experience.
In-house Orchestration vs. Managed Service
- In-house Orchestration: Managing payment processing internally offers greater control but requires more resources and expertise.
- Managed Service: A third-party-managed solution can reduce the burden on your team and ensure expertise in maintaining security and compliance.
IV. Mistakes to Avoid
While choosing the best payment processor, it’s important to avoid common pitfalls that can affect your business long-term.
Underestimating the True Cost of “Cheap” Processors
- Lower upfront costs may seem attractive, but low-cost processors often come with hidden fees, reduced service levels, and potential non-compliance risks.
Treating Payments as a Back-office Function
- Payments should be viewed as a strategic lever for business success, not just an operational task. A seamless payment experience boosts customer satisfaction and retention.
Not Vetting for Regulatory Resilience
- Always ensure that your payment processor is compliant with the necessary regulatory standards. Failing to do so could result in legal and financial penalties.
Overlooking Borrower Experience in the Payment Journey
- The payment experience is a direct reflection of your company’s professionalism. A poor payment process can lead to borrower frustration and lower retention rates.
V. How to Run a Payment Processor Evaluation
Evaluating payment processors requires a strategic approach to ensure the right solution for your lending business.
Gather Internal Needs
- Involve departments such as operations, compliance, product, and finance to understand what is needed from a payment processor.
Create a Scorecard
- Develop a scorecard that evaluates vendors based on functionality, support, cost, and time-to-implement.
Ask for References
- Reach out to other lenders who use the solution for their feedback and insights.
Run Sandbox Tests or Limited Rollouts
- Test the processor’s functionality in a controlled environment to identify any potential issues before going live.
Plan for Risk, Redundancy, and Migration
- Ensure your processor has contingency plans for data redundancy, downtime, and migration challenges.
VI. Future-Proofing Your Payment Stack
As the payment processing landscape evolves, ensure that your payment solution is future-ready.
Preparing for FedNow and Real-Time Rails
- Real-time payments are becoming increasingly important. Ensure your processor supports future payment systems like FedNow to stay competitive.
Automating Payment Retries and Smart Routing
- Automate payment retries and use smart routing to optimize payment success rates, reducing operational costs and improving cash flow.
Tokenization, Wallets, and AI in Payment Decisioning
- Embrace tokenization for enhanced security, digital wallets for better borrower experience, and AI for improved payment decisioning.
Conclusion
The payment processor you choose will have a significant impact on your borrower experience, operational efficiency, and overall business success. By carefully evaluating your options and considering the strategic aspects of payment processing, you can find a partner that aligns with your goals and helps streamline your lending operations.
Take the time to choose a partner—not just a vendor.
Get Started Today!
- Audit your current payment setup and contact OmniaPay to see how we can enhance your loan payment processing with secure, scalable, and compliant solutions.
- Request a demonstration of Vergent’s and OmniaPay to explore how each platform can streamline your operations and provide a seamless borrower experience.