A Guide to Understanding Merchant Services

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    Merchant services is an umbrella term that covers an array of financial services and processes today’s companies may use for their business. It can also be understood as payment processing for small businesses, as it allows you to accept payments through different methods, create invoices, monitor data, and ensure that you are PCI compliant.

    In today’s world, mobile payments are becoming bigger and more important than ever. Digitized payment methods are becoming the norm, with the industry for this growing to around 760 million users in 2020 alone

    The merchant industry is thriving, to say the least. Besides the usual acceptance of mobile payments and credit card or debit card payments, merchant services can also assist your business with accepting gift cards, creating loyalty or rewards programs, processing transactions, payment gateways, and more.

    Since this industry is also becoming more complex as it grows, allow us to walk you through merchant services through this guide.


    What Are Merchants?

    Merchants are those who sell goods and services. These days, eCommerce merchants are more common due to the widespread adoption of online shopping. ECommerce merchants sell their goods and services solely through the internet. 

    Merchant accounts, on the other hand, are bank accounts used for your business. Unlike a regular bank account, merchant accounts allow you to do more than storing funds. Your merchant service provider allows you to accept debit or credit card payments, together with other kinds of online payments, through a payment gateway. 

    However, there may be additional fees, as the merchant absorbs certain transaction fees from the processor, the issuing bank, and even the credit card association. 

    What Do Merchant Service Providers Offer?

    Merchant service providers (MSPs) take charge of selling services for payment processing for processors or acquirers. They can also supply businesses with payment terminals and may be able to assist you with customer service when your payment terminal is working already. 

    There are additional features that merchant services have in their arsenal, which is the perfect set-up for newly minted small business owners. They can help you with check processing, data monitoring, reporting, and as we mentioned, ensuring that your account is PCI compliant for maximum safety and trust. 

    Depending on your chosen merchant account provider, you will get a different combination of products, services, and features. You will then need to choose a provider who is most in line with your business and goals. 

    How Do Merchant Services Work?

    The process begins when customers enter their information in a payment gateway or swipe their card on a credit card terminal. Afterward, the payment processor will pass on this data and verify with your customer or client’s bank before they accept or deny the payment. 

    Upon approval, the payment will be accepted and the purchase will then be completed. The payment processor will get their fees from this, and then the remainder of the funds will be transferred into the merchant account. 

    Opening a merchant account as a small business owner is one of the best things you can do for your company. When you have a whole selection of different payment methods available, you may be able to attract more and more customers. Through adopting merchant services, you can accept credit and debit card payments and other new electronic payment methods. 

    To set up a merchant account, you must select a provider. Take your time looking around for the right provider for you and compare their contract terms, fees, and features. When you create your merchant account, you will have to provide them with your business’ name, details, and all the information needed for where you will be accepting payments.

    Products Offered by Merchant Service Providers

    Merchant service providers have a range of products for different kinds of payment types and providers. To give you an idea of what to expect when you find the provider that works best for you, the following are some of the most common products offered by today’s merchant service providers:

    Payment Gateways

    Payment gateways are the actual software used by a business for their eCommerce shop or website. These gateways allow you to process credit card payments safely and securely online. In the absence of a brick-and-mortar store, the payment gateways function as the physical credit card terminal.

    Credit Card Terminals

    Credit card terminals are the actual mechanisms for swiping, tapping, or dipping a card when you accept a payment. Working with the merchant service provider, the credit card terminal takes charge of accepting, receiving, and validating the payment. 

    Point-of-Sale (POS) Systems

    Point-of-sale (POS) systems include the hardware and software used for receiving payments, as well as other tools for managing your daily sales and operations, monitoring employees, updating inventory, activating rewards and loyalty programs, and many others. 

    Virtual Terminals

    Virtual terminals are software applications that let merchants accept electronic payments in the absence of a physical card. 

    Mobile Payments

    Mobile payments are electronic payments that are made via portable devices such as smartphones or tablets. Individuals can also send payments to other people through these same devices with the help of certain software. 

    Frequently Asked Questions

    What does a merchant service provider do?

    Merchant service providers, or MSPs, are defined as any company that enables merchants to accept credit/debit card payments and alternative payment methods. These companies typically offer a larger suite of services for their individual business needs, such as data management software, POS systems, and payment gateways.

    How do you explain merchant services?

    Merchant services are important to businesses and can be broadly defined as the financial tools that are used to process payments.

    How do merchant service providers make money?

    Merchant account providers have many different ways to make money. For instance, they can get revenue from bank association fees and setup fees, as well as statement charges for every transaction you make on the card.

    What is a good rate for merchant services?

    When choosing between different rates, it is important to look for the one that has a merchant service rate on swiped cards of 1.5% or less at the lower end and 2.9% at the higher end; this will allow you to keep your overhead as low as possible while still getting competitive charges from your processor company.

    Who needs merchant services?

    To simplify the cost for merchants, credit card companies compute interchange into a flat rate plus a percentage of the sale total (including taxes).

    With modern customers preferring instant gratification through electronic payment methods, payment gateways, mobile payments, and the like, we can expect the merchant services industry to become even larger and more complex. 

    If you are a small business owner, merchant services are something you should definitely consider for your growing company. They will not only help you out with your payments but can provide you with the additional tools for jumpstarting your business and getting the ball rolling. 

    Ready to start your journey with a merchant service provider? Check out our guide for the easiest way to get a merchant account. Contact Processing Card today!