Your merchant services provider is a vital partner that can help you operate and grow your business. In fact, the global merchant service provider market is projected to grow from $56.97 billion in 2025 to $64.95 billion by the end of 2026, driven by a 14% annual surge in digital and contactless payment adoption. But what is a merchant services provider, and what do they do?
Merchant services providers facilitate credit card processing and provide other important services for your business. Merchant services is an all-encompassing term that describes the hardware, software, and financial services needed for a business to accept and process credit cards, debit cards, NFC-enabled mobile wallets, and other contactless payments. 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.
- Delivering comprehensive payment systems and payments solutions for both brick-and-mortar businesses and ecommerce operations, including POS systems, payment gateways, and online store integrations.
Traditional merchant services providers often focus on payment processing for brick-and-mortar businesses, but modern providers also support ecommerce and offer all-in-one payment solutions for growing businesses with a comprehensive suite of payment processing and business management tools. Choosing a provider with competitive rates for accepting card payments is important to optimize transaction costs and avoid unexpected fees. Technical issues can arise, so reliable support is crucial to minimize disruptions.
Let’s get back to basics to understand the definition of a merchant.
TL;DR
- 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.
- Merchant service providers offer products to businesses that help them to accept and process payments (in a way that works for them and their customers).
- Many merchant services providers offer mobile apps for accepting payments and managing transactions on the go.
- Having an online account allows businesses to manage invoicing, sales, and bookkeeping in one place.
- Fees and pricing structures can vary depending on factors like processing volume and business type.
- 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. Businesses use point-of-sale (POS) systems to accept and process payments at physical locations. When a customer pays, the MSP acts as the hub for the transaction, securely sending the data from the point of sale (or ecommerce site) to the acquiring bank, which passes it to the card network (Visa/Mastercard), and then to the issuing bank for approval. The MSP manages this entire process, ensuring a secure and approved transaction within seconds.
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 accounting software for reconciliation. Merchant service providers can also provide customer management, inventory systems, and payment reporting. Many merchant services providers offer analytics tracking and reporting tools to help businesses monitor sales and customer trends. High-risk merchants, such as those with higher chargeback or fraud risk, may require specialized high-risk merchant account providers that are equipped to handle their unique needs.
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.
However, merchants are often categorized based on how they accept payments, especially when comparing card-present transactions with card-not-present (CNP) payments and their risks:
- Card-present (CP): Payments made in-person using a terminal (e.g., retail).
- Card-not-present (CNP): Payments made online (ecommerce), over the phone (MOTO), or via invoice/link.
What is a merchant account?
A merchant account is a unique relationship established with a bank (the acquiring bank) that acts as a secure clearinghouse. It is a specialized account—not a standard business bank account—that allows a business to temporarily hold funds from credit and debit card sales before they are disbursed (settled) into the business’s primary operating bank account.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.
Merchant account providers typically focus solely on establishing the relationship with the acquiring bank that facilitates card acceptance. In contrast, a merchant services provider (MSP) is the broader term, encompassing the entire payments ecosystem, including the technology, software, and services (like Stax) required for end-to-end payment management
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 Stax to big bank-operated merchant services (Bank of America, Wells Fargo, Chase Bank), each company offers its own tools, services, and fees—making it important to compare the best credit card processing companies and pricing models. Comprehensive payment processors tend to charge transaction fees of around 2% to 3%. Higher transaction volumes can often result in lower percentage fees per transaction. Payment processors that offer lower fees may be more complex to set up, while all-in-one services may charge higher fees for added convenience and integrated features. Depending on the size of your business, one model may be more expensive than another. Yet with Stax’s all-in-one payment processing, high-volume businesses can benefit from a simple subscription pricing model.
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 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 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.
Stax typically offers a dedicated merchant account model, which establishes a direct relationship between your business and the acquiring bank, providing greater stability and customized risk management.
Merchant services products
The next essential part of what makes up “merchant services” is the different tools available for payment processing. These are 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 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) contactless payments or radio-frequency identification (RFID) touch-to-pay technology.
By 2026, digital wallets are expected to become the primary payment method globally, surpassing physical cards with over 5.3 billion users—representing more than half of the world’s population. In the U.S. specifically, 37% of ecommerce transactions are now driven by digital wallets, underscoring how quickly digital payment methods are reshaping customer expectations.
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.
Many merchant services providers offer mobile apps that enable businesses to accept payments on the go.
Mobile payment technology can also be used to send money to friends or family members with applications such as PayPal and Venmo, and businesses can adopt multiple contact-free ways to collect payments from customers.
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.
ECheck and ACH processing
These allow your business to accept payments directly from a customer’s bank account (automated clearing house or ACH) or via check scanning (eCheck). This is ideal for recurring invoices and large B2B transactions.
Online shopping made easy: Ecommerce solutions
Ecommerce is the activity of electronically buying or selling products with online services or over the internet. Ecommerce solutions are essential for online businesses, enabling them to efficiently process payments and manage sales remotely. From accepting credit cards and debit cards online to setting up your customized web store, ecommerce solutions can bridge the gap when in-person payments are not an option. Many merchant services providers offer tools to create and manage an online store, integrating payment processing, inventory management, and web hosting for a comprehensive solution. Additionally, some payment processors integrate seamlessly with other platforms and third-party ecommerce solutions, streamlining the sales process for businesses.
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
Security is no longer optional; in 2025, data breaches involving a “non-compliance factor” cost businesses an average of $4.61 million per incident. Furthermore, the 2025 update to PCI DSS 4.0 now makes security awareness training mandatory for all staff.
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 payment processing equipment such as 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 cardholder data in line with PCI requirements. There can potentially be a lot of risks involved when accepting payments today. 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.
Technology provider
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?
Benefits of working with a merchant services provider
Partnering with a merchant services provider brings a host of advantages that can transform the way your business handles payment processing and accepting credit card payments. By working with a reliable services provider, you gain the ability to process payments efficiently, accept credit cards and debit cards, and manage your cash flow with ease. Setting up a merchant account through a merchant account provider also enables you to connect your business bank account, making it simple to accept payments and manage transactions securely.
One of the biggest benefits is flexibility in payment options. With a merchant services provider, your business can accept credit cards, debit cards, digital wallets, and other forms of electronic payments—both in store and online. This means your customers can pay how they want, whether it’s with a card, a mobile app, or a digital wallet, leading to a better customer experience and increased sales. Many merchant service providers also offer competitive pricing, with transparent interchange fees and transaction fees, helping you reduce costs and avoid unexpected or hidden fees.
Beyond payment acceptance, merchant services providers deliver powerful business management tools. These can include point-of-sale (POS) systems, inventory management, recurring billing, and even customer relationship management features. Such tools help streamline your daily operations, making it easier to track sales, manage stock, and automate billing—freeing up your time to focus on growing your business. Mobile payments solutions are also widely available, allowing you to accept payments on-the-go, whether at events, pop-up shops, or in the field.
Fast access to funds is another key advantage. Some providers offer same-day funding or next business day funding for an additional fee, so you can get paid fast and keep your cash flow healthy. Other providers may also offer quick funding options, which is especially valuable for small business owners who need to cover expenses or reinvest in their business quickly.
Security is a top priority when it comes to payment processing. A reputable merchant services provider, like Stax, will offer robust fraud prevention tools and aid in PCI compliance, protecting your business and your customers’ payment data. This reduces the risk of data breaches and helps you maintain trust with your customers.
When choosing a merchant services provider, it’s important to consider factors like processing fees, monthly fees, and the range of payment services offered. Look for a provider that offers a secure online payment gateway, supports both in-person and online payments, and provides features like virtual terminals for phone or mail orders. The right provider will help you start accepting payments quickly, expand your business reach, and offer the support you need as your business grows.
Which merchant service is best?
Every cent counts toward 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 1,000 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 pricing: 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 small, fixed markup (the “plus” part) to the variable interchange rate (the true cost set by the card networks and issuing banks). This model is generally considered the most transparent among percentage-based pricing structures.
Subscription pricing (zero-markup model): In this modern, transparent model (offered by Stax), the merchant pays a fixed monthly subscription fee to the provider for the service, and in return, they process payments at direct cost (interchange-only) with a 0% markup. This model offers the most savings for businesses with higher average transaction sizes or monthly volumes.
Tiered rates: Tiered rates group all cards into a few fixed tiers (“qualified,” “mid-qualified,” “non-qualified”). This is generally the least transparent and most costly option for merchants, as many transactions get downgraded to the highest-cost “non-qualified” tier. Stax strongly recommends avoiding this structure due to its complexity and lack of clarity.
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. Technical issues can disrupt payment processing, transfer times, and fund availability, so having reliable support is crucial to minimize downtime and ensure business continuity. 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.
Final words
Ranked one of the best merchant services companies, 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.
Quick FAQs about merchant services provider
Q: What is a merchant services provider?
A merchant services provider is a company that facilitates businesses in accepting and processing various forms of electronic payments, such as credit and debit cards. They act as intermediaries between banks, businesses, and customers, offering a range of services beyond just setting up merchant accounts.
Q: How does a merchant services provider work?
Merchant services providers work by providing the necessary technology and infrastructure to process electronic payments. They handle the transaction process from the point of sale to the deposit of funds into a merchant’s bank account, ensuring secure and efficient payment processing.
Q: What is the difference between a merchant account provider and a merchant services provider?
While both terms are often used interchangeably, a merchant account provider typically focuses on setting up bank accounts that enable businesses to accept card payments. In contrast, a merchant services provider offers a broader range of services, including payment processing, technology integration, and business management tools.
Q: What are the benefits of using a merchant services provider?
Benefits include a diverse range of payment options, enhanced security through PCI compliance, improved cash flow, and access to valuable business insights from payment data. They simplify the payment process, allowing businesses to focus on growth.
Q: How do I choose the right merchant services provider for my business?
When choosing a merchant services provider, consider your business needs, the provider’s fees, integration capabilities, customer support, and industry experience. It’s crucial to select a provider that aligns with your business size and payment processing requirements.
Q: What types of payments can a merchant services provider process?
Merchant services providers can process various payment types, including credit cards, debit cards, contactless payments (like Apple Pay and Google Pay), and ecommerce transactions. They also support mobile and online payment solutions.
Q: What is PCI compliance, and why is it important for merchant services providers?
PCI compliance refers to the Payment Card Industry Data Security Standard, which ensures secure handling of cardholder information. It’s crucial for merchant services providers to be PCI compliant to protect businesses and customers from data breaches and fraud.
Q: Can a merchant services provider help with business insights?
Yes, many merchant services providers offer tools and technology that provide insights into customer behavior, payment trends, and business performance. This data can help businesses make informed decisions and optimize operations.
Q: What questions should I ask a potential merchant services provider?
Key questions include inquiries about equipment costs, processing fees, contract terms, reporting capabilities, and PCI DSS compliance. Understanding these aspects can help you choose a provider that meets your business needs.
