These days, small and medium-sized businesses (SMBs) prefer to opt for industry-specific payment systems and tools over generic solutions.
They account for over 50% of spending on vertical-specific software solutions (i.e., custom software for a particular industry or market).
Merchant services are one of these key investments. They enable secure, efficient in-store and online payment processing and offer flexible payment options that customers demand today.
In this article, we’ll discuss different merchant services for small businesses. You’ll also find guides and expert tips for selecting the ideal provider to support your day-to-day operations.
TL;DR
- Merchant services are integrated solutions that allow businesses to process diverse payment methods across multiple channels. They work through a dedicated merchant account.
- Merchant services help small businesses simplify payments, save money with transparent pricing, and secure transactions with fraud protection and PCI compliance.
- To choose a merchant service provider, compare pricing structures, review contract terms, check system compatibility, and prioritize responsive customer support. Check its scalability and security capabilities too to support your future growth.
What Are Merchant Services?
Merchant services are comprehensive solutions—tools, systems, and support—that allow businesses to process in-person and online payments.
In theory, you could accept third-party payment methods like PayPal, Apple Pay, or Google Pay without merchant services, but this would require individually setting up and integrating each one into your website or point-of-sale setup.
With merchant services, you can integrate these capabilities into one cohesive system. It lets you handle multiple channels, including credit cards, debit cards, mobile wallets, checks, and gift cards, without juggling different systems.
Such robust payment infrastructure relies on these key components:
- Payment processing. The behind-the-scenes technology that routes payment information. This system guarantees secure data transmission between banks and card networks like Visa, Mastercard, and Discover.
- POS systems and card readers. These POS equipment collect payment information at physical locations and transmit them to payment processors. They also integrate with business management tools (e.g., inventory, CRM, and accounting software).
- Payment gateways. These capture, encrypt, and transmit the customer’s payment details from the eCommerce website to the payment processor. This encryption turns data into an unreadable format to prevent fraud and security breaches.
- eCommerce tech stack. For businesses with digital storefronts, these streamline online transactions through shopping carts, website integrations, checkout solutions, analytics and reporting, etc.
- Check processing. This service converts paper checks into electronic payments to speed up the payment timeline, track payments, and manage cash flow. It can also help minimize errors and risks of bounced checks.
You can access these components and your merchant account only through your provider.
Merchant service accounts and how they work
Merchant service providers assess your credit history, business type, and expected transaction volume during application. Once approved, you get access to your merchant account.
This bank account holds customer payments for 1 to 2 business days before transferring funds to your business bank account. Your payment processor verifies the transaction’s legitimacy throughout this period.
From there, let’s see how merchant services can benefit small businesses in particular.
The Benefits of Merchant Services for Small Businesses
Payment complexities can be a stumbling block for thriving SMBs. Here’s how merchant service providers like Payment Depot by Stax can help in terms of efficiency, security, and cost savings.
Simplified payment management
Global cash usage dropped by 80% in 2019 and continues to decrease by 4% each year. Customers nowadays expect more flexibility to pay however and whenever they prefer.
Payment Depot’s all-in-one platform lets you manage brick-and-mortar and online payments in one easy-to-use interface.
You can accept different payment types—card payments, mobile payments, next-day (i.e., ACH transactions), and more. Payment Depot also offers a selection of POS systems like Clover and SwipeSimple for retail and mobile environments.
Cost savings with transparent pricing
Payment Depot’s payment processing services use a transparent interchange-plus pricing structure. It itemizes the card transaction costs (the interchange rate) and the service markup, so you know exactly what you pay for.
In fact, business owners using Payment Depot can save about $400 a month on credit card processing fees by avoiding excessive hidden charges.
Fraud protection and compliance
Access to secure payment solutions like Payment Depot safeguards your small businesses against fraud and chargebacks.
Merchants only have a 20% win rate when contesting fraud-related chargebacks. With PCI-compliant systems in place, verification not only minimizes financial losses but also saves valuable time that could be better spent growing the business.
Reliable providers can help startups and small-scale businesses meet modern payment preferences. To help you choose the right solutions, here are the types of merchant services you should know.
6 Common Types of Merchant Services
Merchant service providers offer various services, features, pricing models, and integration capabilities. Some prioritize payment solutions for physical shops, while others cater better to e-commerce stores and pop-up shops.
Knowing these types can help you choose the best fit for your small business needs.
- POS systems. These in-store hardware and software solutions for brick-and-mortar businesses include card readers, barcode scanners, receipt printers, cash drawers, and POS software.
- Online payment processing. This service sets up your infrastructure to process website or app-based transactions. It often includes virtual terminals for businesses that don’t have a physical storefront (e.g., service providers, consultants).
- eCommerce payment gateways. Payment gateways integrate with eCommerce platforms to create a secure, customizable checkout experience. They feature built-in fraud protection tools such as tokenization, CVV verification, 3D Secure (3DS), and IP address monitoring.
- Mobile payment solutions. These contactless solutions allow on-the-go small businesses to process transactions from smartphones, tablets, smartwatches, and other mobile devices.
- Invoicing and billing solutions. If you manage multiple customers, these solutions automate payment reminders and generate professional, tax-compliant invoices. They can also handle recurring billing and subscription services.
Example: Retail subscription brands, SaaS, and membership-based businesses can streamline billing management by integrating Stax Bill with Payment Depot. Customers can view, download, and pay invoices through an integrated portal.
You now understand how merchant service types suit different business operations. In the next section, we’ll help further narrow your options and choose the best provider to build your payment infrastructure.
How to Choose the Right Merchant Services Provider
Visa and Mastercard maintain a list of certified providers complying with their stringent security standards. Start looking at these providers to weed out those who may not meet the required protocols.
Once you’ve identified a few options, compare key factors like pricing, contracts, and customer support. Here’s a closer look at what to consider.
1. Compare pricing structures
Since you’ll be relying on merchant services for the long haul, it’s crucial to choose a pricing structure that won’t hurt your bottom line. Pricing models vary and each can benefit specific business types and transaction volumes:
- Flat-rate pricing. You pay the same percentage fee for every transaction, regardless of the card type or transaction size. It’s easy to predict your monthly fees. However, the larger the transaction volume, the higher the processing fees.
Best for: small businesses with steady, low-volume transactions
- Tiered pricing. It employs multiple pricing levels based on the card type used (e.g., rewards cards, corporate cards) and the transaction’s risk. Qualifying transactions get the lowest transaction fees, while riskier ones obtain higher rates.
Best for: small businesses that process diverse but low-volume card transactions
- Interchange-plus pricing. You simply pay the base interchange rate (set by the credit card networks) plus a markup by your merchant services provider. This transparent pricing is more predictable and cost-effective for businesses with higher ticket items.
Best for: small businesses with high transaction volumes or varying card types
Review your average transaction volume and size to assess the best pricing structure that will help keep your costs under control.
2. Understand the fine print
Hidden fees and unfavorable contract terms can cost you if you’re not careful. Ask yourself the following questions when reviewing your contract:
- How long is the contract?
- What’s the provider’s cancellation policy?
- Will there be early termination fees?
- Do they charge additional fees beyond the quoted rate?
- What equipment or software charges are there?
- Is there flexibility in the terms?
Don’t fall for promises of low rates or tempting discounts only to be locked into an unfavorable long-term contract. Avoid sneaky fees, early termination penalties, or escalating rates that eat into your profits.
3. Check compatibility with existing systems
Double-check that the provider integrates with your current payment processing setup–both hardware and software systems. Otherwise, you may end up shelling out extra cash for new equipment or updates.
It’s best to ask the provider for a demo to do so. Walk through a sample transaction to check the flow from initiation to completion.
4. Look for responsive customer support
Small businesses risk losing $10,000 per hour of downtime. Although it doesn’t stack up against the $300,000 per hour for mid-size and large enterprises, SMBs have fewer resources to bounce back.
This is why you’d want to partner with a merchant service provider that offers reliable, accessible support channels. Before committing to one, check reviews and ratings on trusted platforms like G2 and Trustpilot.
5. Consider scalability for business growth
Do you plan to expand your product offerings, increase transaction volumes, or open new locations in the future? Be sure your provider can accommodate these changes without requiring major overhauls.
Look for flexible plans and pricing models that can evolve as your business does. Ask about fees for scaling up, adding new users, or handling a higher transaction volume.
6. Evaluate security features
Businesses lose about 3% of their total eCommerce revenue to fraud every year. They also risk facing penalties, legal issues, and a damaged reputation that could take years to rebuild.
Here are non-negotiable security measures your provider must check off:
- PCI compliance – request evidence of their certification if necessary
- Fraud detection tools – check if they employ real-time fraud monitoring, address verification, and CVV checks to catch suspicious activity
Fraud doesn’t only affect big companies—small businesses are prime targets too. Do your research now to protect yourself, not when it’s too late.
Even the best providers can inadvertently cause issues. Don’t hesitate to ask for clarity on anything that seems too vague or confusing—it’s your right to know what you’re paying for and why.
Bonus: Tips for SMBs Selecting a Merchant Services Provider
Don’t rush closing the deal and signing on the dotted line. Take these tips with you as you compare and pick your merchant service provider.
- Identify your specific needs and goals. Do you sell primarily online, or do you need a hybrid solution? How do you plan to grow over the next year or two? The better you understand what you need, the easier it will be to find the right provider.
- Understand your budget and transaction volume. Decide how much you’re willing to spend per transaction to avoid compromising your budget.
- Ask about industry-specific solutions. A fashion online brand requires an entirely different system from a restaurant or dental clinic. Check if your provider offers industry-specific solutions like multi-currency payments, installment plans, recurring billing, and HIPAA compliance (for healthcare).
- Request demos or trials before committing. This is a big one—don’t commit to a merchant service provider without seeing how it works in action first. Request a demo or trial period to test the system and see how it fits with your payment process.
- Seek recommendations from other small business owners. The best advice comes from people who are in the trenches like you—therefore, ask around. Check out local business networks and online communities for raw, honest insights.
It may take a little extra effort now to vet merchant services for small businesses, but it will pay off in the long run. Follow these tips and trust your instincts, you’ll find a reliable success partner in no time.
Simplifying Payments for Maximized Business Growth
Investing in the right merchant service provider is a smart move for small businesses looking to scale and stay competitive. It can help streamline your payment processes, secure transactions, dodge significant financial losses, and boost customer satisfaction.
Take your time to research thoroughly to maximize this long-term investment.
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