Let’s admit it. Cash is becoming quite outdated. Technology is pacing so quickly that you might wake up one day, and the paper money in your pockets will have a significantly lower value. Your business is leading the way towards this day by choosing paperless payment options, followed by customers who adapt to these changes. Merchant services are a form of electronic payment transactions that replaces cash, but why do small businesses need merchant services? Merchant services involve both physical hardware and virtual software, making it possible for small businesses to implement debit and credit card payments.
Banks or third-party providers supply businesses with the instruments needed to implement merchant services. The components required for installing a merchant service include a website payment gateway, POS system, credit card terminal, payment processors, merchant accounts, and others. These are applicable for both online and offline businesses.
Overview of the Merchant Services for Small Business
Statistics provided by the American Bankers Association state that there were 365 million credit card accounts opened by the end of 2020 in the U.S. Small business owners can greatly benefit from these trends. Giving customers more flexible means of purchasing is worth it after seeing the large number of people who own a credit card.
Which Merchant Service Provider Is The Best?
In 2022, there has been a surge of businesses implementing merchant services. Providers range from one another based on the industry and other factors that we will discuss in the paragraphs below. Firstly, let’s see the main types of providers:
- Credit & Debit Cards Payment Processing – allow payments through debit and credit cards.
- Check Guarantee and Check Conversion Services – allow customers to pay through checks.
- Automated Clearing House (ACH) – permits payments without using credit or debit cards.
- Gift Card and Loyalty Programs – grants customers payments through special discounts.
- Payment Gateway – finds use mainly in e-commerce stores.
- Merchant Cash Advance (MCA) – implies money lent to a business or individual in exchange for a fraction of the future sales.
- Online Transaction Processing (OLTP) – allows the processing of numerous transactions simultaneously.
- Point of Sale (POS) Systems – process payments while keeping track of the data for reports.
- Electronic Benefit Transfer (EBT) Programs (ration stamps/food stamps) – these are cards where welfare support is deposited for paying goods and services.
Who Is My Merchant Services Processor?
Most business owners set up a deal with a provider, but they are not clear about the integrated Payment Processor since it is rarely shown during the process. The Payment Processor is the mediator that guarantees the payments are processed among the provider and other financial institutions (e.g banks). You can understand this by seeing how payments are processed. For instance, if they’re processed via PayPal, then this is your processor. You might be asking, “How much should I pay for merchant services?” Along with other technical questions. Now, when we have a clear idea of some of the best merchant service providers, let’s get into these details to help us select the right one.
Criteria for Choosing the Most Suitable Merchant Service Provider
Choosing the ideal merchant service provider might appear a bit tricky for your business since nearly all of them offer similar features with slight differences. These small differences determine whether a provider is worth it for the long term or not.
What Should You Know Before Choosing a Provider
Several factors are considered essential for choosing a merchant provider, but we have picked three must-know indicators to keep an eye on when selecting a provider:
- Customer support. Providing customers with quick payment options is crucial, but if the system is glitching and there’s no answer from the support teams, this becomes impossible. The process requires constant assistance when you set up the payment processors or integrate them with your online store.
- Reliable services. A merchant provider is an integral part of your revenue. If you’re running an advertising campaign and the system goes down, you’re prompt to lose hundreds of purchases and a significant amount of income. Look through reviews and the provider’s track record to ensure reliable service.
- Strong security. Security is another determining factor for choosing the right provider. They must provide security monitoring, tokenization or encryption, and clear coverage and compensation policies if the data is compromised. Read through the providers’ regulations and security programs offered by providers and the steps taken to ensure compliance with the payment process.
While checking for these factors, keep in mind your business needs and the forecasted traffic you expect to receive, as well as the industry. The ideal merchant provider should be prominent for offering secure services in your industry.
What Should You Know Before Switching from an Existing Provider?
Besides new businesses that want to equip themselves with up-to-date technologies before launching into the market, established companies may also seek to switch from an existing provider to a new one. When this is the case, there are three things to be kept in mind:
- Check for cancellation penalties. Most providers apply penalties upon the cancellation of service. Check the signed agreement for details of the cancellation policies and ask the support for further clarification. Depending on the terms and conditions, you may have to wait until a certain period before terminating a contract with the provider to avoid paying fees.
- Identify the owner of credit card processing equipment. If you’re not entirely sure about the ownership of the equipment, get in touch with the provider. If the privilege belongs to you, you will save the costs of purchasing new ones if the new provider deems it compatible with their systems.
- Verify the functionality of the gift and loyalty card programs. Changing payment processors may cause the gift and loyalty program to stop working. Check with both the new and the existing provider whether it’s possible to transfer them.
Pricing Policies of Merchant Service Provider
The type of integration and business can make the difference in the pricing principles and how each merchant service provider charges. Most merchant service providers charge a monthly statement fee revolving around $10 or less. There’s also a monthly fee ($25) if you don’t pass the threshold of minimum payments.
The merchant account service charges commissions on each transaction processed by credit cards (ranging from 2%-5%). Furthermore, you should expect an additional uniform fee after each transaction (20-70 cents). Also, extra costs ($10 – $20) are needed to process a refund to customers. In the case of physical businesses such as restaurants, retail stores, or others involving in-person contact with customers, there is an additional cost for the credit card terminal. The prices of the terminal range from $120 to $1,000.
Merchant services are instrumental for small and mid-sized businesses aiming to convert as many potential customers as possible into buyers. Not only is this a way of reaching more customers and expanding the business beyond cash payments, but it also gives customers the flexibility of purchasing from the comfort of their own homes. Electronic payments are received faster than mailed invoices or paper checks, and business owners can store them more securely. Customers are distancing more and more from businesses that do not offer credit or debit card payment options. Therefore, you should start considering a merchant service provider if you haven’t already.