Explained Simply: What is a Merchant Services Provider?
Your Merchant Services Provider is a vital partner that can help you operate and grow your business. They facilitate credit card processing and provide other important services for your business. Essential services offered by a merchant services provider include:
Accepting payments from your customers via credit, debit, and electronic payments allowing for seamless transactions.
Securely managing PCI compliance when processing and storing payment information for your business, making your customer data safe.
Providing your business with technology to track payments, understand business data, and collect outstanding invoices.
Let’s get back to basics to understand the definition of a merchant.
In This Article
- What Is a Merchant?
- Who Is Considered a Merchant?
- What Is a Merchant Account?
- Merchant Account Provider vs Merchant Services Provider
- How Does Merchant Services Work?
- How Easy Is It To Open a Merchant Services Account?
- Merchant Services Products
- Payment Processing
- Payment Security
- Technology Provider
- Which Merchant Service Is Best?
- What Should You Look for in a Merchant Services Provider?
- Payment Processing Pricing
- Don’t Forget About Customer Support
- Merchant services companies provide businesses and individuals with the tools and requirements to accept credit cards, debit cards, and other forms of electronic payment for transactions to take place.
- The products that merchant service providers offer to businesses in order for them to actually be able to accept and process payments in a way that works for them and their customers.
- A Merchant Services Provider grants you the technology and information your business needs to optimize operations. You can learn a lot about your business from the payment data provided to you by your Merchant Services Provider.
What Is a Merchant?
“Merchant” is a term used by payment processors to refer to their customers. Customers, or merchants, are businesses that accept credit card payments from their clients in-person, online, or over the phone. A Merchant Services Provider offers products and systems to help those businesses run smoothly.
These products and services often integrate with the business tools you already have. For instance, your payment provider may connect to a POS system for your retail store or to your QuickBooks Online for reconciliation. Merchant Service Providers can also provide customer management, inventory systems, and payment reporting.
Who Is Considered a Merchant?
A merchant represents a person or company that sells goods or services. Merchants can sell items in-person or online (sometimes called an eCommerce merchant). Most merchants today operate both in-store and online.
Different Types of Merchants:
- eCommerce Merchant: A merchant who sells items online.
- Retail Merchant: A merchant who sells items that they purchase from manufacturers.
- Wholesale Merchant: Merchants/manufacturers who sell items to retail merchants.
- Affiliate Merchant: Merchants who use affiliate networks to sell goods.
- Direct-to-consumer (DTC) Merchant: Merchants who sell items to consumers that they themselves create.
DTC merchants have become quite common in recent years, as selling goods on the internet has a very low barrier to entry. Most DTC companies are still wholesale merchants, selling their items to retailers who then sell the item to the consumer.
What Is a Merchant Account?
A merchant account is a bank account specifically established for business purposes where companies can make and accept payments. Note that a merchant account isn’t the typical bank account. This is a basic assumption that poses a lack of clarity for most business owners. Merchant services accounts allow businesses to accept credit and debit card transactions or other forms of electronic payment from customers, with the aid of a payment gateway.
Merchant account services often come with added fees, but also an array of services. Most often the merchant has to cover the transaction fees from payment processors, the credit card association, and the issuing bank for the merchant account. To that effect, it’s perhaps savvier for the merchant to look out for an option that’ll help cut down the cost per transaction.
On the other hand, a low processing fee doesn’t guarantee reliable service and support in the long run.
Merchant Account Provider vs. Merchant Services Provider
While the two entities overlap quite a bit, there are some distinctions between merchant services and merchant account providers.
The former is a much broader term that’s used to describe an organization that has various offerings for merchants—including payments, technology integrations, businesses services, etc.
Merchant account providers typically stick to helping businesses set up their merchant account—i.e., the type of bank account that enables you to accept credit and debit card payments.
In many cases, these terms are used interchangeably.
How Does Merchant Services Work?
Merchant services companies provide businesses and individuals with the tools and requirements to accept credit cards, debit cards, and other forms of electronic payment for transactions to take place.
There are thousands of merchant service providers in the U.S alone. From ISOs and third-party merchant services providers like Square, Stripe, Paypal, and Stax to big bank-operated merchant services (Bank of America, Wells Fargo, Chase Bank) each company offers its own tools, services, and fees. Depending on the size of your business, one model will be more expensive than another.
How Easy Is It To Open a Merchant Services Account?
A merchant services account establishes a business relationship between a merchant services provider and a business. Doing so provides the business with the ability to accept debit and credit cards, contactless payments such as Apple Pay, eCommerce transactions, and more. Some payment processing companies like Square don’t require a merchant services account in order to do business with them.
Not having a merchant services account can be a risky choice. Payment processing providers such as Square often accept higher-risk business clients that wouldn’t normally qualify for a merchant account. That increases the risk for the payment processor. If your business falls into that category, you’re more likely to experience an account hold for certain transactions. If the payment processor decides to no longer assume that higher risk, they can simply cancel your account leaving you unable to accept payments from customers.
Merchant Services Products
The next essential part of what makes up “merchant services,” is the different tools available for payment processing. The products that merchant service providers offer to businesses in order for them to actually be able to accept and process payments in a way that works for them and their customers.
What are the Contactless Payments
Contactless payments include credit and debit cards, Apple Pay, Android Pay, Google Pay, Fitbit Pay, and other devices that use near field communication (NFC) or radio-frequency identification (RFID).
Pay on-the-go with Mobile Payments
Mobile payments are payments made for a product or service through a portable electronic device such as a tablet or cell phone. Mobile payment technology can also be used to send money to friends or family members with applications such as PayPal and Venmo.
Swipe, Dip, and Tap: Credit Card Terminals
A Credit Card Terminal also called an Electronic Data Capture Terminal or EDC Terminal is an electronic device that enables merchants to accept credit cards allowing customers to swipe, dip, or tap their credit or debit card to make a payment.
Online Shopping Made Easy: eCommerce Solutions
eCommerce is the activity of electronically buying or selling products on online services or over the Internet. From accepting credit cards and debit cards online to set up your customized web store, eCommerce solutions can bridge the gap when in-person payments are not an option.
Boost Sales with Virtual Terminals
A virtual terminal is a software application for merchants that allows them to accept payment with a payment card, specifically a credit card, without requiring the physical presence of the card.
Upgrade Your Business with POS Systems
A point of sale system, or POS, is the place where your customer makes a payment for products or services at your store. Simply put, every time a customer makes a purchase at your store, they’re completing a point of sale transaction.
Secure Payment Gateway
A payment gateway is a piece of software that works with your website or eCommerce store and allows you to take and process secure credit card payments online. The payment gateway serves in the place of a credit card terminal.
Secure Payment Processing with Merchant Services Provider
A Merchant Services Provider functions as the intermediary between banks, your business, and your customers. This allows you to confidently accept your customers’ preferred form of payment. With a Merchant Services Provider, you can depend on this payment arriving securely in your bank account.
When a customer swipes a card, the Merchant Services Provider moves the customer’s funds to your bank account. The funds will typically appear in your bank account within 48 hours. Many businesses do qualify for next-day funding and can get paid even faster.
Your Merchant Services Provider is where you will purchase or rent credit card terminals and mobile swipers. If you have an online business, they will seamlessly integrate with your eCommerce store. Virtual terminals let you accept payments online or key in payments over the phone. Your Merchant Services Provider will help you find the right payment processing services for your business.
Secure Payments: Prioritize Payment Security
Payment Security is vital for businesses processing credit card transactions, online payments, and maintaining card number storage. There can potentially be a lot of risks involved when accepting payments today. According to one report, almost $25 billion was lost to credit card fraud in 2016. Through Payment Security, a Merchant Service Provider can help you and your clients conduct business transactions safely and securely.
Your Merchant Services Provider can help you ensure PCI compliance. This means that cardholder data stored by your business, including names and card numbers, is secure. Businesses can be proactive in protecting data by using strong passwords and updating their antivirus software regularly.
Meanwhile, your Merchant Services Provider will maintain PCI compliance on the payment end of your business. This includes tokenizing payment information and protecting your business by putting fraud prevention measures in place. Learn more about how Stax protects your payments.
A Merchant Services Provider grants you the technology and information your business needs to optimize operations. You can learn a lot about your business from the payment data provided to you by your Merchant Services Provider.
- Which customers are spending the most time and money with you?
- What times of day, month, or year are you collecting the most payments?
- Are there products or services on which you could increase your revenue?
Important Questions to Ask Your Merchant Services Provider:
- How are your equipment costs structured?
- What are your processing costs?
- Are there any other costs or fees?
- What kind of contract is required?
- What kind of reporting and statements are offered?
- Is all of your equipment PCI DSS compliant?
Which Merchant Service Is Best?
Every cent counts towards improving your business operations. This is why finding the best merchant service provider is so important. If you need to grow your business and serve your target market, then you need to have proper merchant services in place. There are over 1000 payment processing companies in the U.S. Here are a few things to consider while choosing payment processing platforms for your business.
With all the changes occurring in the economy, it’s imperative to provide a myriad of payment options to your customers. Payment processing solutions such as mobile payments, virtual terminals, and touch-free or contactless payment solutions expand revenue generation opportunities and give your customers a more seamless experience.
In some cases, it also makes sense to partner with a company that offers payment services beyond credit cards. Payments types like ACH and Text2Pay are quickly gaining steam, so it makes sense to use a provider that supports these modes of payment.
What Should You Look for in a Merchant Services Provider?
While looking for a merchant services provider, make sure to take note of their costs. Depending upon the kind of solutions you need, you will most likely have to keep the following charges in mind.
- Setup Fee
- Equipment Fee
- Monthly Fee/Service Fee
- Transaction Fee
- Credit Card Processor Fee
Payment Processing Pricing
Flat Rate: Suitable for small retail businesses and startups with a low sales volume, the flat rate is a fixed percentage that’s based on a charge when processing payments. This pricing model is quick and easy to set up and has the best ease of use
Interchange-Plus Pricing: Each credit card issuer such as Mastercard and Visa has specific interchange rates for each card type whether it be CNP or Card present transactions. With the interchange-plus pricing structure, the processor adds a markup to the interchange and takes a cut out of each sale.
Direct Interchange: A direct interchange fee is one where the merchant charges a one-off monthly fee without any percentage rate. It’s not the best for small businesses that generate low volumes of sales.
Tiered Rates: Tiered rates are grouped in different structures that separate each card type(Visa, Mastercard, Discover). It’s not the most convenient for small to medium-sized businesses. Since the fees fluctuate this is not an ideal option for B2C transactions.
Additional Fees to Watch Out For:
- Account fees
- Minimum processing fee
- Statement fee
- Account setup fee
- Cancellation fee
- Chargeback fees
- NSF fee
- Early Termination fee
Don’t Forget About Customer Support
Be sure to vet the customer support offerings of a merchant services provider. Payment processing has several moving parts, and tech issues may arise. In these instances, you want a knowledgeable partner who has your back and can ensure that everything runs smoothly.
When selecting a provider, look into their customer service capabilities. Is support available 24/7? What platforms or channels can you use to access the info you need? What are other merchants saying?
The answers to these questions will help you gauge a provider’s reliability when it comes to customer support.
Ranked one of the best merchant services companies of 2023, Stax has disrupted the payments industry with our subscription-based pricing model. Stax is a subscription-based merchant service provider with total transparency built into its model. All merchants have access to direct cost payment processing with 0% markups, no contracts, and no hidden fees.
We believe that all of this useful data should be placed in the hands of business owners like you. You can increase your knowledge and make strategic decisions that will positively impact your business. That’s why we built Stax, our all-in-one payment platform. With Stax, you can track payments, create payment links, and collect invoices in one place. Plus, you can also view detailed reports about the state of your business at any time.
Contact Stax to learn more about how to get started today.
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