For most small businesses, it’s critical to find the right payment processing solution. But how should you go about finding a service with a trusted reputation and reasonable fees? In addition, understanding what is and is not included with merchant services can be challenging because the term has expanded to include more than just accepting credit card payments.
Let’s dive in to help answer some basic questions about payment processing and merchant services:
What are Merchant Services?
“Merchant services” refers to products and services that enable businesses to accept payments, such as credit or debit card transactions. When you accept payments at the point-of-sale (POS), a merchant services provider handles all of the back-end work to make the transaction happen. Merchant services providers are third-party organizations such as banks, independent organizations, POS system providers, or payment gateway providers.
When a customer enters their payment information, the transaction is forwarded to the cardholder’s financial institution for authorization. If the transaction is approved by the bank and card issuer, the purchase price (minus any fees or chargebacks) is deposited into a merchant account. Later, the funds can be moved to your business bank account. The process works a little differently for online sales, but many of the steps are the same. Although it sounds like a long process, these steps actually happen within seconds once a customer makes a payment – whether they swipe, tap or insert their card, or use a digital wallet such as Apple Pay (if supported by the merchant services provider).
What is Needed to Process Electronic Payments?
One of the most popular reasons a business will engage with a merchant services provider is to get the equipment they need to accept payment transactions. Some merchant services providers offer industry-specific solutions, such as POS systems for restaurants and retail. In most cases, the equipment can either be leased or purchased. Merchant services providers typically offer products such as:
How Much Do Merchant Services Cost?
Most merchant services providers assess monthly fees which are withdrawn from the merchant’s account. Fees will likely be based on a monthly service fee and per-transaction rates. Common pricing models used by merchant services providers to cover card processing fees include:
What is a Merchant Account?
Businesses have checking and savings accounts that they use to pay bills and receive payments. A merchant account is a special bank account that is used for transaction processing through a payment gateway. The merchant services provider deposits payments into the account and withdraws fees or possible chargeback costs. Merchants then move the funds from their merchant accounts into their business bank accounts where they can access the funds.
What is Settlement?
In a perfect world, every transaction would be completed flawlessly, but business owners know this is not the reality. To ensure your business is properly credited, you’ll go through a daily settlement process with your merchant services provider. When looking at possible providers, ask about the settlement process. With today’s technology, settlement should be almost automatic and should operate on an exception basis, meaning only flagged transactions should require research. The settlement process is what determines which funds are deposited into a merchant account at the end of each business day.
How to Choose a Merchant Services Provider
Finding the right merchant services provider can make a big difference in how much you pay for smooth, convenient payment processing. But there are a dizzying variety of payment processing companies, so how do you choose?
Every penny counts when running a small business, especially when you’re trying to get your feet off the ground. However, choosing the right merchant services provider for your business should be based on more than just a good price. Consider the following:
BankFive partners with First Data’s Clover Business Solutions to provide an array of business management and POS solutions for our business customers. If you are a business owner in MA or RI and would like to learn more about merchant services, schedule a consultation with a member of our dedicated Business Banking Team today. Let us help take your business to the next level!
Let’s dive in to help answer some basic questions about payment processing and merchant services:
What are Merchant Services?
“Merchant services” refers to products and services that enable businesses to accept payments, such as credit or debit card transactions. When you accept payments at the point-of-sale (POS), a merchant services provider handles all of the back-end work to make the transaction happen. Merchant services providers are third-party organizations such as banks, independent organizations, POS system providers, or payment gateway providers.
When a customer enters their payment information, the transaction is forwarded to the cardholder’s financial institution for authorization. If the transaction is approved by the bank and card issuer, the purchase price (minus any fees or chargebacks) is deposited into a merchant account. Later, the funds can be moved to your business bank account. The process works a little differently for online sales, but many of the steps are the same. Although it sounds like a long process, these steps actually happen within seconds once a customer makes a payment – whether they swipe, tap or insert their card, or use a digital wallet such as Apple Pay (if supported by the merchant services provider).
What is Needed to Process Electronic Payments?
One of the most popular reasons a business will engage with a merchant services provider is to get the equipment they need to accept payment transactions. Some merchant services providers offer industry-specific solutions, such as POS systems for restaurants and retail. In most cases, the equipment can either be leased or purchased. Merchant services providers typically offer products such as:
- POS systems
- Payment card readers to accept debit or credit cards
- Software to help manage inventory, sales, and other business needs
- Payment gateways and eCommerce services to accept online orders
- Marketing opportunities such as gift cards, promotions, or loyalty programs
How Much Do Merchant Services Cost?
Most merchant services providers assess monthly fees which are withdrawn from the merchant’s account. Fees will likely be based on a monthly service fee and per-transaction rates. Common pricing models used by merchant services providers to cover card processing fees include:
- Flat Rate: Fixed fee rate for all payment types, such as 2.3% per transaction. This is typically best suited for retail businesses with low sales volume.
- Interchange Plus: The most common pricing model used by merchant services providers. Merchants are charged a rate set by each credit card issuer plus a fixed per-transaction fee, such as 2.3% + $.10.
- Direct Interchange: A one-off monthly fee rather than a per-transaction rate. Best for high-volume merchants, not ideal for lower volume small businesses who might not break even on the set fee.
- Tiered Rates: Rate structure is based on volume of transactions the business does. Transactions viewed as high risk, or with specific card types, may be subject to a higher rate. Since fees fluctuate, tiered rates are not ideal for B2C transactions, and can be inconvenient for small businesses.
What is a Merchant Account?
Businesses have checking and savings accounts that they use to pay bills and receive payments. A merchant account is a special bank account that is used for transaction processing through a payment gateway. The merchant services provider deposits payments into the account and withdraws fees or possible chargeback costs. Merchants then move the funds from their merchant accounts into their business bank accounts where they can access the funds.
What is Settlement?
In a perfect world, every transaction would be completed flawlessly, but business owners know this is not the reality. To ensure your business is properly credited, you’ll go through a daily settlement process with your merchant services provider. When looking at possible providers, ask about the settlement process. With today’s technology, settlement should be almost automatic and should operate on an exception basis, meaning only flagged transactions should require research. The settlement process is what determines which funds are deposited into a merchant account at the end of each business day.
How to Choose a Merchant Services Provider
Finding the right merchant services provider can make a big difference in how much you pay for smooth, convenient payment processing. But there are a dizzying variety of payment processing companies, so how do you choose?
Every penny counts when running a small business, especially when you’re trying to get your feet off the ground. However, choosing the right merchant services provider for your business should be based on more than just a good price. Consider the following:
- Equipment: Which providers have the best equipment options? Are there options for industry-specific solutions? Are there virtual terminal options for online or mobile transactions? What about touch-free or contactless POS solutions? Do they offer any other services besides credit card processing that could add value to your business, such as gift cards or loyalty programs?
- Security: Are security responsibilities clearly defined? What areas will you be responsible for, and what risk will the provider assume? Is the provider PCI-compliant?
- Settlement: What information is available to facilitate settlement? Is transaction data available for analysis? What reports are available?
BankFive partners with First Data’s Clover Business Solutions to provide an array of business management and POS solutions for our business customers. If you are a business owner in MA or RI and would like to learn more about merchant services, schedule a consultation with a member of our dedicated Business Banking Team today. Let us help take your business to the next level!