MERCHANT SERVICES DEFINITION
Merchant services: Choosing the right provider for your business transactions
It’s essential to include online ordering to utilize alternative payment methods (credit card, digital wallet, etc.), especially for small businesses that have just begun operating in recent years. Whereas cash is suitable for most transactions, the modern customer expects more. This means the introduction of merchant service providers to your daily operations; however, most people don’t know who those providers are or what they do.
This article offers answers to the essential questions about merchant services—definition, how these services are used, and advantages and disadvantages.
Merchant Services Definition
Simply put, merchant services process electronic transactions. Regardless of the payment type, a merchant service provider moves payments from one bank account to another. This process is also known as credit card processing.
Merchant service processing occurs in several stages:
Customers present their chosen payment methods, and the information is sent to the merchant’s financial institution.
The transaction is then sent to a payment processor, card association (Visa, Mastercard, etc.), and issuing bank for approval.
The transaction is either approved or denied. Approvals are sent backward through the card association and merchant terminal.
The merchant payment terminal accepts the approval, at which point a receipt is printed, and the transaction is complete.
During this process, fees are charged to the merchant conducting the transaction for the services rendered. While these fees are capped at 4% of the total transaction by federal law, nonetheless, they are a considerable expense for small business owners.
What other services are included?
Merchant service providers primarily process transactions (see chart above). Depending on the provider, some may offer additional services that benefit your small business. Some of the more common additional features might include:
|Detailed transaction reporting:|
|In short, your merchant service provider shouldn't stop at simply conducting transactions. By providing you with up-to-the-minute statistics on purchase histories as well as customer preferences, the provider should also allow you to make critical business decisions by providing you with insights into your current business model.|
|Customer loyalty or rewards programs for return customers:|
|When your business does well, your merchant service provider does as well. With this in mind, many merchant service providers offer the ability to formulate customer loyalty plans, which use customers' purchase histories to offer specialized discounts on products they love. This increases the likelihood that they will make a return visit or even refer new customers to your business.|
|Gift card capabilities:|
|On the same note, many merchant service providers also give you the ability to create gift cards from scratch. These gift cards can be customized and printed using hardware provided by your new POS. Gift cards give you the ability to ensure future business and draw in larger audiences that might not have been available otherwise.|
|Surcharging and cost reduction tools:|
|Your merchant service provider should offer options, such as customer service charging, where customers pay an additional transaction fee to cover the cost of processing, to help reduce costs across the board. Your merchant service provider should cover these options, detailing the advantages and disadvantages of such tools.|
Companies with these additional services can use them to better understand and motivate their customer bases. For example, loyalty programs rely on a customer’s purchase history to offer specials on their most commonly purchased items. This motivates these customers to return to your store to purchase high-value items.
What equipment do I need for merchant service processing?
Because credit card processing happens online, the first thing your business needs is a stable internet connection. You will also need a card reader and a POS terminal to process the payment on your end.
What type of POS system you choose is really about determining what your business needs. Traditional registers work just fine for most daily operations; however, some owners are looking for more utility. Brick-and-mortar stores likely need just a countertop model, but businesses offering mobile services should consider a tablet-based model, as they offer additional features to streamline daily operations.
Perhaps most important is signing up with a reputable processor, which often comes through a POS provider; provided they are reputable, much of this equipment will be provided when you sign up.
Is merchant service processing secure?
Generally, yes, but it’s important to note that there is always risk involved in credit card processing. For this reason, it’s critical to think about the reputation of your merchant services provider. Check the provider’s history for records of previous leaks (as well as how they were handled) to get an idea of its track record. Ideally, there will be none, but the company should have a proven track record of a) fixing the leak and b) appropriately compensating its clients.
Many possible issues can arise with merchant service providers. A few major red flags to look out for include:
A high declined transaction rate (25% or higher) might indicate an issue with your merchant service provider’s ability to approve transactions or communicate with the customer’s card issuer.
Although the processor will provide a certain level of security for your transactions, you can add to it by using private security measures on your terminal for additional levels of security to payments. These measures can result in further expenses; however, the benefits may outweigh the negatives if you are particularly concerned.
However, choosing the right provider does a lot of the heavy lifting for you. In addition to general security measures, the provider can discuss additional options with you as you sign up. This leads to perhaps the biggest question on our list—which provider do I choose?
How do I know which payment processor to select?
This is the main question that most small business owners face. Because there are so many different providers, it can be difficult to pick between options. While this does pose some problems, there are a few central elements to keep in mind, including:
The biggest thing that interested parties can look for when choosing between merchant service providers is their current track records. This would include records of any leaks as well as how they were handled, in addition to their general perceptions by the rest of the industry.
While many merchant service providers have a list of general features that apply to any business in any industry, other providers offer more specialized features designed for specific industries. For example, the ability to automatically set promotions or discounts (as mentioned in the extra features section above) would be a powerful revenue generation tool for restaurants looking to apply an automatic happy hour discount. When selecting your merchant service provider, you should keep these features in mind.
Security features should be an important concern of any small business owners for their transactions. This especially goes for card and online transactions, which make up an increasingly large share of modern-day payments. Your merchant service provider should offer extensive security features and additional security measures that you can opt in to, should you choose.
Whether you own a brand new business or an experienced business that has been operating for decades, there will come a time when your business needs additional help. When that happens, you want to make sure that your merchant service provider has a 24/7 customer service line in which you can address grievances and have specific questions answered to solve specific problems.
Keeping these qualities in mind, business owners should be able to make more informed decisions about their merchant service providers. This does not necessarily mean that their first choice will always be correct; for that reason, we also highly recommend selecting a provider that offers the option to close a contract when necessary. Small business owners should examine their entering agreements closely, noting the terms of cancellation for such a contract.
What does the startup process look like? (Cost, qualifications, etc.)
Your merchant service provider is effectively the institution that allows you to conduct business in the 21st century. An increasingly large portion of online sales requires it to survive, let alone thrive. For that reason, we highly recommend carefully considering your options in choosing the one best suited for your business.
That being said, the choice is explicitly difficult. For this reason, many small businesses choose to go with an established POS provider that includes merchant service processing. POS providers like talech do just this; in addition to offering industry-specific features, we include processing through Elavon to handle our payments. This simplifies the onboarding process and allows business owners to get started in just a short period of time. Best of all, we offer a free demo for you to try out for yourself.
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