What Is Merchant Services (And How to Choose the Best Provider)

According to reports, roughly 80% of Americans choose debit and credit cards as their preferred payment method. Further research states that debit cards are increasingly replacing cash. Merchant services is the most frequently used payment method for in-person purchases.

Not only are consumers gravitating away from cash purchases, but online and mobile payments are also on the rise. This means that businesses need reliable merchant services now more than ever before.

In short, no matter what type of business you have—it is essential that you sign up with merchant services that can handle your needs.

But what is merchant services? Before you begin the process of getting set up with merchant services, it’s important that you know what they are, how they work, and what to look for in a provider.

Read on to find out all this and more.

What Are Merchant Services?

Merchant services is a term used to describe a wide range of services offered around payment processing.

To put it simply, a merchant service provider processes payments. These include credit and debit card payments as well as payments through online payment gateways. Besides these integral functions, merchant services also provide credit card terminals and services such as full-scale POS systems.

Let’s take a look at a basic example of how payment processing works. In the case of an in-person debit or credit card payment, the customer will give you their card. The card is swiped, or the details are entered into the card terminal provided by the merchant service.

The card machine then verifies the information against the customer’s bank. If the bank approves the transaction, it goes through, and the customer completes their purchase.

The money is then transferred to the account of the merchant processing service. From there, merchant processing fees are deducted, and lastly, the remainder is deposited into your account.

What Do Merchant Services Cost?

An essential thing to compare when looking at different merchant processing providers is the fee structure.

The costs associated with merchant services are one of the chief complaints among merchants and can be high. For this reason, you must examine the different fee structures carefully and select one that is the most cost-effective for your needs.

To help you with this, let’s take a quick look at some common pricing structures and rates.

Flat-Rate Merchant Service Fee Structures

One of the most common merchant service fee structures is flat-rate pricing.

The way this works is that you will usually be charged a percentage fee of each transaction, plus a flat rate. So, for example, with a cost-effective provider, you might pay around 2.7% of the value of each transaction plus $0.10 per transaction.

With pricier options, you could be looking at closer to 3% fee per transaction plus a flat rate of around $0.30 per transaction.

With flat-rate merchant service fee structures, you will be charged the same fees regardless of what card your customer uses to pay. However, the flat rates will likely differ between card terminal payments and online payments. Online payments typically come with higher fees.

Interchange-Plus Fee Structures

Another type of pricing that is common among merchant processing services is the interchange-plus model. This pricing system is less straightforward than flat-rate fee structures. However, it is more transparent.

With interchange-plus fee structures, you get charged the exact fee amount that the credit card network charges your merchant service provider. In addition to this, the provider will also charge you an additional fee, which is their mark-up for processing your payments.

With interchange-plus pricing structures, you will be able to see exactly which part of each merchant service fee charged goes to the credit card companies, and which part is going to your provider. Provider’s fees are generally levied as a percentage of each transaction.

In general, interchange-plus is viewed as the best and most cost-effective merchant service fee structure.

Tiered Pricing

Tiered pricing is another typical merchant service fee structure. Here fees are broken down into tiers based on the amount of risk that a provider takes on when processing payments. Debit card payments are considered the safest, while credit card payments and online payments are riskier.

Depending on the payment type, the provider will charge you differently. Tiered pricing can be easier to analyze than interchange-plus fee structures. However, it is generally one of the more expensive models.

How to Choose the Best Merchant Services Provider

Whether you are setting up an e-commerce store or a brick-and-mortar outlet, you will need to find reliable merchant services. It is vital that you do your homework and choose a provider and package that is suited to your business type.

Here is a list of steps to take before you decide on a merchant processing services provider.

Get Clear on Your Needs

The first thing to do is get clear on what your needs are.

For example, do you run a physical store that does not have an online presence? In that case, you won’t need access to online payment gateways, but you will need a card terminal. Depending on the size of your business, you may also require a POS system.

On the other hand, a business that operates solely online, won’t need card terminal services, and instead should focus on finding a merchant services provider with an online gateway product that has a strong track record of security.

Another scenario might be that you need to take card payments on the go, for example at a farmers’ market or trade show booth. In this case, then you would also need a mobile card payment option such as a virtual terminal or an integrated app.

Research Merchant Services Providers’ Reputations

Once you have established what you need from a merchant services provider, the next thing to do is check out potential providers’ reputations. An excellent place to start is the Better Business Bureau.

To gain a good rating with the BBB, businesses need to be fully licensed, 100% transparent in their marketing, and have a good track record of conflict resolution. Besides the BBB, you can also look at online reviews, or ask other business owners that you know what their experience has been with their merchant services provider.

Find out About Support Services

The next thing to look into is support services. If you have an issue with your terminal, POS system, online payment gateway, or any other component of processing payments for your business—you will want to be able to get help and get it fast.

To make sure that you will get the support that you need, vet providers by their customer support hours, and reputation for good support. Will they be able to help you at 8 in the evening, or early in the morning? If so, that is a great sign.

Lastly, do they have a toll-free customer support number?

Compare Fee Structures

As mentioned above, understanding and comparing the different merchant service fee structures is essential. To ensure that you don’t pay more than you need to, you will need to pick a fee structure that serves your needs and a package that is not overpriced.

Watch out for Long Term Contracts

When selecting a merchant processing service, it is vital that you carefully examine the merchant agreement terms that you are given to sign. Merchant agreements are contracts between you and the provider, and you are bound by what is in the contract if you sign it.

Some merchant agreements lock merchants into long term contracts combined with high exit fees. You will want to stay away from these types of merchant agreements.

Nowadays, it is not uncommon for merchant service providers to offer month-to-month contracts. These are a far safer option, especially if you are trying out a provider for the first time.

Check Processing Time

Processing time (the time it takes for a payment to reflect in your account) can vary between processing these services.

Long processing times can impact cash flow and liquidity, so it is a good idea to compare the average processing times between providers.

Are You Ready to Choose a Merchant Service Provider?

Now that we have answered the question “What is merchant services”, do you need to start vetting out a merchant processing service that will suit your needs?

If you are ready to select a merchant services provider, we can assist in setting you up with Clover™, one of the top POS systems. You can find out more about Clover™ merchant services on this page or contact us today if you have any questions and we will be happy to help.