Whether your business has been in operation for a day or a decade, you probably are well aware that there is a lot more involved in making a sale than simply exchanging cash or a credit card for a product or service. Behind the scenes, a great deal of activity goes into the process. These are what are commonly called merchant services. Learning how this industry works can help you to choose the best merchant services account provider in order to streamline numerous aspects of your daily business tasks and become more profitable.
A merchant services overview.
Originally, the term, “merchant services” referred specifically to the technology and components involved in accepting credit card payments. It included hardware such as terminals, receipt printers, and cash drawers, as well as the software that communicated with the various players in the payment process. Over time, however, the concept expanded to also encompass other tools, companies, and business-related tasks.
How merchant services help you process payments.
There are several steps that occur every time a customer pays for your product or service with a debit or credit card. As a whole, this is called payment processing.
• The customer’s credit card information is entered into the system provided by your merchant services partner. This could happen with the swipe of a magnetic stripe card, the dip of an EMV chip card, the tapping of an NFC contactless payment in a digital wallet, via a mobile card reader, over the phone, or online.
• Your merchant services provider or payment processor transmits the information to the customer’s bank for verification. (In the case of Total Merchant Services, we have access to our own, in-house processor, EPX.)
• If the transaction is approved by the customer’s bank, you can complete the purchase.
• Upon completion of the purchase, the payment processor deposits the funds, minus fees, into your merchant services account.
In spite of the complexity of this process, it remarkably only takes a few seconds to complete. This well-coordinated dance among payment participants is the only way to successfully complete electronic transactions.
Merchant services tools.
Today’s payment landscape is sophisticated and complex, giving you a myriad of options to choose from. These include:
- Payment gateways. Essential if you are planning to conduct ecommerce transactions, a payment gateway is an interface between your online store and the customer. In effect, it acts as a physical credit card terminal and facilitates the secure transmission and processing of payments in a similar way.
- A credit card terminal. This physical hardware device allows you to take in-person payments through tapping, swiping, dipping the various payment methods.
- A point of sale (POS) solution. A step up from a simple terminal, a POS is a hardware and software combo that not only facilitates customer payments but does much more as well. With it, you can also tend to many of your daily, monthly, quarterly and annual business processes, including tracking, updating inventory, and managing employees. Plus, generating customized sales reports.
Important fee-related concepts.
There are many variables involved in how the price of merchant services is determined. The company you choose, the types of services and tools you require, and how you use them all factor into what you will ultimately be expected to pay. Keep in mind that no matter what company you pick, there will be processing fees, which may be consolidated into one of the following fee structures:
- Flat-rate pricing. This is usually a percentage of the transaction value, plus a small per-transaction fee. This rate applies regardless of the type of credit card used but might be higher for certain types of transactions.
- Interchange-Plus. You are charged what the fee that your merchant service provider pays to the credit card network plus a markup per-transaction fee charged by your provider. With every monthly statement, you can see what portion of your payment goes to the card network and which to your merchant service provider.
- Tiered pricing. In this model, the pricing a provider charges is based on the risk of the transactions you make. For example, in-person payments are less likely to be declined than online or international ones, and therefore less costly.
In addition to these pricing configurations, you may be required to pay one-time or incidental fees like:
- Annual or monthly account fees to work with the provider.
- A minimum processing fee that is billed if you fail to transact a set number or amount of transactions in a specific time period/
- A fee to ensure that you are in compliance with card industry data security standards — don’t worry, we can help!
- An account setup fee.
- Chargeback fees if a customer receives a refund after disputing a transaction.
- Non-sufficient funds fee if your account does not contain enough money to pay your bills.
As you can see, the concept of merchant services is a complex one. Choosing a provider that can best meet the needs of your customers and your own business is crucial. After all, it is a relationship that may last for years and can greatly impact many aspects of your employee and customer experience, not to mention your bottom line.