The Complete Guide to Merchant Services for Small Business

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THE COMPLETE GUIDE TO MERCHANT SERVICES FOR
SMALL BUSINESS
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The process of accepting and processing payments
are an integral part of small business daily
operations. The whole process isnt as simple as
it seemsits all done and process via merchant
services that allows you to accept payments and
get paid for the transactions.
Merchant Services is used to mention to different
financial services and processesusually to
accept and process payments. Earlier, it is
referred as a way to accept credit cards
payments. The payment technology has evolved and
now the term includes all tools, and processes
involved with payment processing for small
businesses.
Here is everything you need to know about what
merchant service is and how it works, the types
of providers and technology involved in merchant
processing, and how to select the suitable
merchant services for your small business.
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What Are Merchant Services?
Merchant Services also called credit card
processing is the process of managing electronic
payment transactions for merchants. The process
involves receiving sales information from the
merchant, obtaining transaction authorization,
accumulating funds from the bank, and sending
payment back to the merchant.
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How Merchant Services Work?
A merchant service provider, also called a
payment processor, manages the process by
providing services to businesses to accept card
payments from their customers.
How merchant services work depends upon numerous
factors including how the payment is accepted,
the types of payments, and the provider, etc. The
process starts when a merchant swipe a customers
credit card to fulfil the transaction. The
transaction is completed via a credit card
processing terminal along with the technology to
run debit or credit card payments through it. The
process involves the following steps
The merchant swipe a customers credit card by
entering the information into the processing
terminal
The payment processor reviews the customer data
with the bank before accepting or denying the
information
Once the information is approve by the customers
bank, the merchant can accept the payment via
processing terminal and the transaction will be
complete
After the transaction is approved, the payment
processor deduct its fees and transmits the
remaining funds into your merchant account
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Merchant Services Products
Payment Gateways (PGW)
Credit Card Terminals (EDC)
The merchant service providers offer different
tools as products for small business merchants to
accept and process payments. The main products
includes the following
Point of Sale Systems (POS)
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Payment Gateways (PGW)
A payment gateway is essential for merchants that
are accepting online payments from their
customers. A payment gateway is a software from
your merchant service provider that works with
your website, ecommerce store or Apps to enable
you to obtain and process credit card payments
online.
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Credit Card Terminals (EDC)
A Credit Card Terminal, also called an Electronic
Data Capture Terminal (EDC) is essential for
accepting in-person payments. Its a physical
device that merchants use to swipe, dip, or tap a
credit cards. Credit card terminals connect with
the merchant service provider to facilitate the
process to collect, authenticate, and actually
obtain a payment. There are different types of
credit card terminals from traditional credit
card terminals, wireless/portable credit card
machines, debit card machines, smart terminals,
and integrated credit card machines to mobile
processing apps and virtual terminals.
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Point of Sale Systems (POS)
A credit card terminal is part of a point of sale
system that usually made up of the software and
hardware required to accept payments, manage
daily sales and processes of a business. A
point of sale system preforms a variety of
functions from accepting payments, processing
sales, running reports, tracking inventory,
managing staff, reconciling commissions, to
accept gift cards and setting up loyalty
programs. Most businesses often use merchant
services and point of sale synonymously since
point of sale systems typically includes
everything you need to handle your sales and
payment processes.
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The Providers of Merchant Services
The merchant service providers provides all the
financial services to small businesses in the
merchant services industry. For merchants to
accept credit card payments from customers need a
payment processing company to obtain the tools
(hardware and software) needed to facilitate the
payment processing. There are two discrete
categories of merchant service providers
Merchant account providers and Payment service
providers.
Merchant Account Providers
Payment Service Providers
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Merchant Account Providers
As the name suggest, merchant account providers
provides business owners with the merchant
accounts. This merchant account is the bank
account required to accept credit card payments
from the customers. Typically, merchant account
providers set up the accounts and their
functioning along with a POS system, payment
gateway, or mobile credit card terminal.
Generally, merchant account providers necessitate
extended and complicated application and set up
process, with the lowest possible merchant
processing fees. The best merchant account
providers include Fattmerchant, Payment Depot,
Payline Data, Dharma Merchant Services, Square
and Braintree.
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Payment Service Providers
On the contrary, payment service providers
accumulate funds from their dissimilar clients
into a single merchant account and then allocate
the funds from this account to each individual
business bank account. They dont typically
include unique merchant accounts for their
customers, which a merchant account provider does.
Payment service provider also provide numerous
tools to enable a business to accept and process
payments from its customers. The set up process
is easy typically at a flat rate as compare to
merchant account providers. The payment service
providers are often related with account
instability since there combine all of their
customers funds into one account. The best
payment service providers include PayPal, Stripe,
Flagship Merchant Services, Payline Data, Ayden,
BitPay and Square.
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Merchant Processing Fees
Pricing is another important aspect of merchant
processing services for small businesses to
understand. The cost of merchant processing
services for your small business will likely
vary. Having said that, the opaqueness and the
integrally complex attributes of merchant
services pricing is a collective critique of the
industry.
However, the cost of merchant processing services
will depend on the factors like the provider you
work with, service type, and how you use the
services. Moreover, the overall cost will also
include the processing fees along with the cost
of tools (the POS system or payment gateway).
Credit card processing fees is charge by the
merchant service provider to process payments
after the transaction is complete. This fee is
distributed in different parties including the
issuing bank, the credit card network, the
receiving bank, and the payment processor. There
are three main types of merchant processing fees
in credit card processing
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Transaction Fees
These fees are charged per transaction a merchant
process with a credit card. Transaction fees
include interchange rate, the assessment fee, and
the payment processor markup.
Payment Processor MarkupThis fee is charge by
the payment processor along with the interchange
fee. The markup depends on the individual payment
processor with varied specific pricing plans.
Irrespective of the processing plan, try to avoid
long-term contracts so you can compare them and
can switch when you grow big or its otherwise
become beneficial. Always do a thorough research
and compare plans of different providers so you
can choose the best option available.
The Assessment FeeThe card network charges a
fixed fee, beside interchange rate or
reimbursement, for every transaction. When the
assessment fee added into interchange rate or
reimbursement, its called the interchange fee.
Each network has its own interchange fees that
are revised twice annually. Just as lenders
charge higher interest rates on small business
loans for startups or risky businesses, the card
network also charge high interchange fees to the
businesses they considers risky. This cost is
non-negotiable and fixed irrespective of the
processor you use, since it comes directly from
the card network and is part of the overall
interchange fee.
Interchange Rate The interchange rate is a fee
charge by the issuing bank special id 2013to the
receiving bank whenever a customer uses their
credit card. Either the merchant pay some or all
the interchange rate directly or via an
interchange reimbursement, which is slightly
lower than the entire interchange rate. This cost
is non-negotiable and fixed irrespective of the
processor you use. This is calculated as a
percentage of the total sale amount. Each card
network determines their own rates and it varies
based on factors such as the cards brand, card
type, the risk card network considers with the
merchant business and industry, and how the
merchant accepts payment.
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FLAT FEES
Flat fees are the cost merchants required to pay
on a monthly basis for working with a payment
gateway or merchant services provider. There are
two types of flat fees
One-Time Flat Fees This fee is negotiable and a
payment processor can waive off this fee if you
can negotiate sensibly. Some service providers
charge more flat fees than others, and the most
common one-time flat fees include
Recurring Flat Fees The recurring flat fees
include the following flat fees
Monthly or annual account fees
Monthly minimum processing fee
Terminal lease or rental fees
Account setup fee
Withdrawal fee
Terminal purchase fee
Payment gateway provider fee
Cancellation fee
Statement fees
IRS reporting fee
Payment card industry (PCI) fees
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Similar to flat fees, incidental fees also charge
by the payment processor and are a result of a
specific incidencemeaning some months, you might
not face any of these fees. Some of the most
common incidental fees include
Incidental Fees
Account fees
Minimum processing fee
Statement fee
PCI-compliance fee
Account setup fee
Cancellation fee
Chargeback fees
While selecting a merchant service provider, ask
them for any hidden fees involved in the services
before signing up for the account. While working
with a payment service provider, you can avert
fees for statements, account setup, cancellation,
and minimum processing.
Non-sufficient funds fee (NSF)
Cardholder dispute fees
Batch payment processing fee
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Selecting the Best Merchant Processing Services
With all the above information in mind, the next
step is to select the best merchant processing
services. With so many merchant service providers
in the market, selecting one can be confusing
especially one that will be the right fit for
your business. Here are few things to consider
while selecting the best merchant processing
services for your small business
Is your business will be accepting online
payments or in-person payments?
Is your business will be taking credit cards,
debit cards, or contactless payments?
Is your business needs a full POS system or a
simple credit card terminal?
Is your business only needs a payment gateway?
Does your business need a unique merchant account?
What merchant servicing costs your business can
afford besides processing fees?
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The Bottom Line
The merchant services industry is all
encompassing and multifaceted, but it doesnt
mean you cant find the suitable merchant
services for your small business. If youre able
to understand your requirements and compare
different services based on your requirements,
you can actually find the best merchant service
provider that will work for you
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