One of the most important parts of launching a new business or rehabilitating an existing one involves choosing the right merchant account or merchant services provider. Most likely, the experts you trust have emphasized this fact numerous times.
So, what exactly are credit card payment processing companies and merchant account providers, what does each do and will you need one? If you do, just how do you go about selecting the one that is best for your business?
What are merchant services?
Any ecommerce business owner who chooses to accept credit and debit card payments, digital wallet transactions, ACH, cryptocurrency or any other method must find a merchant services provider who can support their needs.
A merchant services company not only facilitates the acceptance of electronic debit and credit card payments but also securely manages and processes customer data in a way that complies with the Payment Card Industry Data Security Standard (PCI DSS) for cardholder protection.
Additionally, a merchant service provider offers POS system hardware such as card readers and card terminals as well as software that enables you to track payments, launch customer loyalty programs, collect invoices, integrate with third-party accounting and other software and generate insightful reports that can help to spearhead your next marketing campaign.
Merchant services providers can help you to obtain what is known as a merchant account. This is a repository separate from your business account that is specifically designed to facilitate the making and acceptance of payments.
Your payment processing provider can also furnish you with the payment gateway that makes it possible for customers to securely make online purchases from your store that are eventually deposited into the merchant account until the settlement procedure is complete.
How do merchant services work?
In the United States alone, there are thousands of merchant services providers vying for your business. They are not all the same, with many specializing in specific industries or attempting to differentiate themselves from the competition by offering lower fees or no long-term contracts.
Before deciding on the payment processing provider that is best for you, it is important to understand your goals, examine several options and carefully understand every detail of their fees and obligations.
Only then should you make a decision and sign any agreements.
After doing your research, you need to open an account with a payment processor. This must happen before you can take any credit card, electronic or contactless payments. Some payment processing companies such as PayPal and Square don’t require that you have a merchant account in order to partner with them.
However, not having a merchant services account may cause you to be placed in the “high-risk business” category, which can lead to higher fees and even sudden, unexplained account closure.
If you are a new business owner, have a poor credit history or work in a sensitive industry such as gaming, adult entertainment, pharmaceuticals or travel among others, you will automatically be given this designation.
It’s not the end of the world although it can cost you more and place you under additional scrutiny. However, if you can avoid this label by obtaining a merchant account, it’s probably in your best interest to do so.
Merchant services vs merchant account: what’s the difference?
Merchant services and merchant accounts are both involved in processing credit card and other types of payments. However, the terms are not interchangeable.
A payment processing provider facilitates the authorization, processing and settlement of debit and credit card, electronic, ACH, cryptocurrency and other types of payments. Payment processing solutions act as intermediaries between your business and your customer’s bank or other financial institution.
Specifically, the payment processing company verifies the buyer’s information, checks for sufficient funds, facilitates the transfer and ensures that your business receives the money you are owed. These companies often work side-by-side with payment gateways to bring about a secure and seamless payment experience for all involved.
By contrast, the merchant account is the repository that accepts payments. Having this account in place allows a business to receive money from a variety of payment methods.
In a nutshell, both payment processing companies and merchant accounts are integral to the completion of electronic payments.
Payment processors make funds transfers possible, while merchant accounts hold the money until settlement is completed and they can be deposited in the business’s regular bank account.
Why do you need a merchant services provider?
Merchant services providers offer a wide array of features to their customers, making partnering with one of them an excellent decision for most business owners.
In addition to facilitating credit card and other forms of payment, these companies can set you up with a payment gateway, help you to configure a compelling customer loyalty program, assist you in measuring employee productivity, track sales, generate reports and help with inventory management.
Whether you do business online, at a physical store or both, one of your highest priorities should be to make the checkout and payment processing experiences as secure, efficient and seamless as possible.
A high-quality merchant services company can be vital in helping you accept payments in order to achieve these goals consistently and can grow and change as your company evolves.
What services does a merchant service provider offer?
Partnering with a high-quality merchant services provider sets your business up for success because of the full range of features and options they make available to you.
In addition to credit card processing, these payment solutions provide you with all of the materials you need, including credit card terminals, point of sale payment processing software, barcode scanners, receipt printers and cash drawers.
In addition, merchant services providers can get you set up with a payment gateway that facilitates secure online payments. The POS system they offer can become vital in virtually every facet of your business, including inventory and employee management, customer relationships, finances, sales tracking and report generation.
You can choose to either obtain a single merchant account exclusively for your own use through a merchant services provider or to partner with another type of company called a payment service provider, who will aggregate your funds with those from other businesses into one larger account for a simplified payment processing experience.
In either case, you should accept nothing less than stellar customer service, transparent pricing and an emphasis on data security. If possible, avoid long term contracts or excessively complicated cost structures.
What fees are associated with merchant services?
It probably comes as no surprise that partnering with a merchant services provider comes with fees. Some of them are imposed by the credit card companies and cannot be negotiated. However, there is a great deal of leeway when it comes to some of the other charges you are asked to pay.
Whenever a customer uses a credit card to make a purchase from you, there are associated fees. Some merchant services companies, for example, levy a fixed per-transaction fee, adding nothing to what the credit card company requires. Others add some of their own extra charges if you want to accept credit cards and other payment types.
There are three different pricing structures that have an impact on the fees you will see. In the flat-rate model, your merchant services provider would charge a flat rate for each transaction, a fixed percentage on each transaction or a mixture of both each time the credit card is swiped.
The percentage usually ranges between 1.75 and 3 percent and contains a per-transaction fee. This model is often preferred by small business owners because of its simplicity and transparency.
The interchange-plus model charges the credit card companies’ per-transaction processing fee as well as a mark-up from the provider. When reviewing a company offering this pricing model, be sure that you understand every additional fee being charged.
Finally, a tiered payment structure charges you different fees based on various factors, including the types of card payments you accept (debit, prepaid, etc.) as well as how the transaction occurred (keyed in or swiped, card-present or not).
While this tiered structure offers variety and flexibility, it can be overwhelming to many small business owners.
How to choose the right merchant service provider for your business
Because your merchant services provider will be a close partner and can be instrumental in fostering your success, it is vital to choose carefully among your many options. Start by assessing your business and its goals, considering factors such as average transaction value, sales volume, types of payment methods you want to accept and whether you want to take online, in-person, phone payments or a combination. Use the answers to these questions to help you as you research various providers.
As you examine your options, focus on pricing structures and fees. Concentrate on the various charges, including introductory setup costs, transaction fees, monthly costs and equipment rental charges. Be on the lookout for hidden or confusing additions.
Furthermore, evaluate each company’s customer support systems. This assistance will prove invaluable for solving payment-related issues and minimizing downtime in the event of technical or data security difficulties.
Require that their support has a good reputation with current customers, is available via multiple channels and at most if not all times of the day and night.
Finally, accept nothing less than a solution that prioritizes data security, updates systems frequently, integrates with your third-party systems and provides you with a robust set of reporting and analysis features.
These will give you everything you need to take a snapshot of your business and employee performance on various parameters whenever you need it.
Today’s merchant solutions make it possible for businesses to accept an ever-increasing array of payment types. Their various features and pricing structures can often be customized to gel with your company’s unique needs.
Ultimately, they can be a vital ally in providing your customers with a secure, efficient and reliable payment experience that will be part of a strong foundation for promoting your growth and success.
