Whether you’re just starting with merchant services for your business or considering an upgrade or change, understanding what to look for and expect can make a significant difference. This guide will help you learn about merchant services and how to utilize them effectively for your business.

In this guide:

• What are merchant services?
• What is a merchant account?
• How merchant services can benefit your business
• The costs of merchant services
• Choosing a merchant services provider

What are merchant services?

Merchant services encompass the various tools and services that businesses use to accept and process payments from their customers through credit cards, debit cards, and other electronic payment methods. These services are typically provided by banks, credit card companies, POS system manufacturers, and other organizations. Some examples of merchant services include:

• Point-of-sale (POS) systems – devices used to process payments
• Payment card readers – tools for accepting chip, swipe, or contactless cards
• Business management software or apps – software that assists in managing orders, inventory, employees, customers, and other business aspects
• Online payment gateways – software enabling businesses to accept payments online
• eCommerce platforms and services – tools to create and manage an online store
• Cash advances and business loans – financial services offering access to capital
• Gift card, loyalty, and promotional programs – marketing tools to engage customers for new or repeat business

What are merchant services providers?

Merchant services providers are third-party companies that act as intermediaries between businesses and the financial institutions that process payments. Although they primarily offer credit card processing, these providers are increasingly branching out into related areas like gift cards, loyalty programs, and broader business operations management.

Types of merchant services providers include:

• Banks
• Independent Sales Organizations (ISOs)
• POS system providers
• Payment gateway providers

What is a merchant account (and why do you need one)?

A merchant account is a specialized bank account that allows your business to process card-based sales and electronic payments securely. It temporarily holds funds before they are transferred to your business bank account. Many businesses apply for a merchant account through their merchant services provider or payment processor.

How merchant services can benefit your business

Merchant services serve two main purposes: enabling your business to accept credit and debit card payments and ensuring that customer transactions are secure and efficient.

The journey of a payment, from when a customer makes a purchase to the funds being deposited into your business account, is facilitated by the payment processor. This processor manages the transaction data, ensuring that the process runs smoothly and securely.

The importance of scalability and flexibility

Merchant services providers are evolving beyond simply processing payments; some now offer comprehensive POS systems that include much more than payment processing. These systems can track inventory, run reports, manage employees, and handle tips and commissions.

With these additional features, merchants can focus less on payment processing and more on running and growing their businesses. In a rapidly changing market, merchant services providers should not only address your current needs but also be adaptable enough to meet future demands. For instance, you might start with a basic card reader and later expand to a full POS system that supports mobile wallets, contactless payments, and eCommerce transactions. Additional accessories like printers, cash drawers, and mobile payment devices can also be integrated as needed.

Given the expanding possibilities, it’s essential to carefully consider different factors and make informed decisions for your business. (More on this in the section about choosing a merchant services provider).

The costs of merchant services

As with any business service, merchant services come with costs, typically structured as follows:

• Monthly or annual service fees
• Per-transaction rates

Since the pricing structure of merchant services can be somewhat opaque, it’s important to understand the most common costs.

What are merchant services fees and rates?

To ensure merchant services support your business without overburdening your finances, it’s essential to grasp the basics of credit card processing and its associated rates and fees. For more details, refer to our Credit Card Processing Guide.

Merchant services providers generally use one of three common pricing models: flat-rate, tiered, and interchange-plus.

• Flat rate: The processor charges a fixed fee for all credit and debit card transactions, regardless of the card type used. This may be structured as a simple base rate (e.g., 2.9%) or a base rate plus a small per-transaction fee (e.g., 2.9% + $0.30 per transaction).
• Tiered: The processor charges a fee based on the card type, the level of risk associated with the transaction, and the business’s overall transaction volume. This model can be complex and potentially confusing.
• Interchange Plus: This is the most transparent and common pricing model. It involves charging a percentage of the transaction (the interchange rate) plus a fixed per-transaction fee.

It’s crucial to note that not all transactions are processed at the same rate. A qualified transaction generally incurs a lower fee than a non-qualified one.

In addition to base pricing models, merchant services often include various fees. It’s important to be aware of these fees, as they can sometimes be negotiated or minimized.

Fees that should stay within industry norms:

• Monthly service fee
• AmEx transaction fee
• PCI compliance fee

Fees that experts recommend negotiating:

• Application fees
• Monthly minimum penalty fees
• Statement fees

Choosing a merchant services provider

When selecting a merchant services provider, consider your current and future business needs. Ask the right questions, research thoroughly, compare options, and be prepared to negotiate. Remember, not all merchant services providers offer the same level of service.

What to consider when choosing a merchant services provider

When evaluating providers, focus not only on low rates but also on the ability of the provider to support your business operations and growth while being transparent about pricing. Some key questions to ask include:

• Do they offer the software, hardware, and services necessary for my business?
• Are their rates and fees transparent and easy to understand?
• Is their customer support responsive and accessible?
• Do they provide protection against credit card fraud?
• What additional services might I need as my business grows?

The importance of customer support

A reliable merchant services provider will offer responsive and easily accessible customer support. Ensure that their support package includes knowledgeable representatives who can assist with any questions or issues. For example, Clover provides 24/7 support for all U.S. merchants, along with multiple levels of service.

Credit card fraud protection and security

Securing your payment processing systems is essential. Look for providers that offer:

• Systems supporting PCI compliance to protect your business and customers. For more on PCI compliance, see our guide.
• Options to request the security code (CVV) on customer cards and their zip code.
• Insurance to cover worst-case scenarios.
• Control over employee access to your POS systems.

Additional services to consider

Be sure to inquire about any additional services the merchant services providers offer that could benefit your business now and in the future. For example, Clover offers a range of business services beyond payment processing, such as cash advances, employee management, and customer engagement programs.

Other additional services to consider include:

• Financing options like credit lines and business loans
• Employee and payroll solutions
• Small business banking services
• Business management app integrations

Disclaimer: This guide is for informational purposes only.