What Exactly Is Merchant Services?
Simply stated, Merchant Services is the process of accepting electronic payments from your customers. In other words, credit card processing.
What are Merchant Services?
In short, merchant services allow your business to accept card payments from your customers. This is otherwise known as credit card payment processing. When a customer makes a payment for goods or services, this transaction undergoes a chain of approval so the payment can be accepted. The customer’s credit card information is sent to the merchant’s acquiring bank, which is then sent to a payment processor. Next, the card association (MasterCard, Visa, Discover, AMEX) sends this information to the issuing bank (this is the bank where the credit card was initially issued). This is where the approval, or denial, of payment happens. The issuing bank then sends a code to the credit card association, who sends it to the merchant’s acquiring bank, and finally onto the merchant’s payment terminal. Once the transaction is completed, the merchant’s terminal then prints a receipt. The customer will then pay their credit card bill at the end of the billing period.
What is a merchant account?
Put simply, a merchant account allows businesses to accept credit and debit card payments.
To open a merchant account, a contractual agreement is made between the merchant and the acquiring bank (who will be processing the card payments) and any other parties involved in processing payments, such as a payment processor, an independent sales organization (ISO), and a member service provider (MSP).
What are merchant account fees?
It is important to understand the various types of fees when considering a merchant account. Typically these fees are determined by the way your business operates; the size of your company, credit score, potential risk factors and whether you have a history with any other merchant services. Businesses can expect to pay transaction fees which are calculated by the actual transaction amount and a flat fee (this can vary depending on your merchant services provider), minimum fees which are applied monthly, and gateway fees which are only charged if the merchant services provider uses a third party payment processor.
What are interchange fees?
Understanding the importance of interchange fees, what they mean, and how they relate to your business is crucial for businesses considering a merchant account. Also known as interchange rates or pricing, these fees are charged to the merchant by a credit card processor and must be paid in order for the merchant to accept credit card payments. These rates are set by the card associations and card-issuing banks.
Interchange fees are determined by the type of merchant you are, how big or small your company is and how your company accepts payments.
What is Interchange Optimization?
There are hundreds of interchange cost structures available, which is where interchange optimization can really help your business find the best rates available to maximize on credit card processing savings. Interchange optimization is based on industry-specific program requirements created by the major card brands (MasterCard, Visa, AMEX), and ensure that your business qualifies for the best interchange rates in every transaction that you process.
5 FREQUENTLY ASKED QUESTIONS ABOUT MERCHANT ACCOUNTS
1) Are merchant services right for my business?
Merchant services can really help your business grow and control costs. Engaging a payment processor that uses their own products and technology is more likely to be cost effective. Fraud prevention and data security are as paramount online as they are in-store. Choosing a merchant provider that specializes in eCommerce, for example, will ensure that you can securely accept payments from all major credit cards, as well processing popular virtual payment types, such as Apple Pay.
The best merchant services can transform how your business manages transactions, saving you both time and money, allowing you to focus on other areas of your business.
2) Will I be approved for a merchant account?
This will depend on your type of business, and whether the credit card networks have assigned you any risk factors. You may experience a longer application process, or be required to pay higher fees for transactions with a bigger risk factor.
3) How much will it cost to have a merchant account?
The cost of accepting credit card payments can vary. It’s important to note what fees will be assessed for your company, which will be laid out in the initial contract. The fees you are responsible for will include both interchange rates and processing fees. Depending on the payment processor you choose, there may be room to negotiate a better, or lower rate for your business.
4) How long will it take before I'm up and running?
The setup process is dependent on different variables of a business, like size and card acceptance method. Larger more established businesses that require multiple POS systems in multiple locations, for example, could experience a more extensive setup.
5) What type of POS do I need?
A Point of Sale system may not always be necessary. The type of terminal you need will depend on the type of payment method your business will be accepting. If you are based in a single location, a POS terminal could be the best option, however, if you are on the move, then a virtual terminal or mobile device that works with an integrated app, for example, would be a better option.