As our world economies have shifted away from cash and towards using electronic and alternative payment methods, the need for merchant services by business owners has never been more apparent. Businesses that operate retail storefronts have seen customers every year using more and more credit or debit cards while the demand for e commerce continues to grow exponentially.
This consumer growth has spurned the demand for merchant processing services, predominately for credit and debit card merchant services, but also spilled over to alternative payments. This has made it difficult for businesses to determine which merchant service providers to process their payments.
Merchant account services entail both retail and online businesses. There are many different facets to the merchant account industry, from point-of-sales dealers that work with heavy cash businesses such as restaurants to payment gateway service providers that specialize in online card transactions. The payment industry is expansive, with many different types of merchant service providers.
What are Merchant Services?
Merchant services can include a variety of different offerings by financial services companies. Encompassing services such as merchant accounts to maintenance on storefront card terminal hardware; the industry has various niches within the merchant services umbrella. With the advent of the internet, how money can be sent and received has continued to evolve, including many new ways to solve problems while simplifying other tasks.
With the internet, the marketplace has become global. This means that not only are merchants located worldwide, but the products and services being sold can be anywhere to customers at any point. While some industries have remained practically constant, mainly retail, the online and international markets have carved out their niche and created their industries.
Types of Business Merchant Services Available
- Retail
- Online
- Higher Risk
- Offshore
Each of these industries has different needs than others. Though they will vary, the constant remains the movement of money. Payment processing services alone can have several different means of transferring funds. Many products have become available for sending and receiving money online, between mobile phones or countries. Other methods of more traditional payments have been improved to increase the speed and accuracy of payments, helping ensure businesses do not lose money due to fraud or other problems. Depending on the customers, whether they prefer making payments online with cards or other means will affect the merchant locations differently.
Most Common Merchant Services to Accept Payments
- Credit and Debit Cards
- Electronic Checks
- ACH
- Cryptocurrency
Payments have exploded with the growth of the internet. As the different technologies have been taken online, the accessibility and ease of each method have been improved to provide ease and speed to customers checkouts. These changes have led to, and continue to fuel, the future growth of the merchant services industries and the new products offered to consumers.
Almost half of all payments today, including online transactions, are made using a bank card, either a credit card or debit card. The trend of consumers moving away from physical currency has continued for years and made the need for businesses to keep up with this trend ever so important. As more financial products and payment services have become available, such as e-wallets, the usage of credit and debit cards has grown and continues to thrive.
With improvements to the electronic check networks and guidelines to increase payout timelines, merchants have increasingly turned to electronic checks as one of the lowest-cost alternatives to accepting payments. As an easy software to integrate into most payment gateways, businesses have become very receptive to its faster settlements and increased leniency for business terms compared to the payment card industry.
Aside from the payment card networks managed by companies such as Visa and MasterCard, cryptocurrency is the most known online payment type. With many different types of coins available, each offering its security and promises of valuation, the crypto industry has exploded. Loved for the anonymity it offers users, this type of currency has been wildly popular with higher risk merchants looking to provide customers with a reliable yet secure way to make payments for their products or services.
The many different methods of accepting payments will continue to expand the merchant service industry into new territories. As technology allows for more reliable and secure payment methods, the demand for these alternatives will continue to thrive, allowing new merchant service products to become available and pricing more competitive.
How do Merchant Services help a Business?
Businesses accepting customer payments will have different needs depending on the type of business and the types of payments to be accepted. The equipment and types of transactions accepted at a restaurant will vary significantly from what a high risk credit card processing merchant will need. For this reason, finding the proper merchant services company specializing in the business industry is necessary to prevent problems for customers and merchants.
Merchant Service payment processors specializing in retail merchant processing will help storefronts and online stores to set up the type of card terminals needed for their industry. Some businesses can operate solely on a countertop machine where cards are swiped, and the sales amount is manually entered with the keypad. Other types of businesses, such as restaurants or wholesalers, usually require more sophisticated setups that allow users from multiple locations to enter sales and send orders while tracking inventory.
On the contrary, businesses that operate e commerce will want to seek out the services of a specialized online merchant service payment processor. Here businesses can be paired with a payment gateway and discount merchant services to offer the best solution for online sales. Partnering with an experienced team will help merchants receive the services and accounting support they need to grow their online business into a thriving enterprise.
The right services can make a significant difference to businesses, whether it means having the right equipment installed or knowledgeable staff; many service providers are working to grow the payment processing industry.
Typical Merchant Service Fees for a Merchant Account
The pricing for merchant services can vary dramatically depending on several factors. The industry of the business and the financial history of the merchant can have significant effects on the pricing of their payment processing. These fee differences can also affect the pricing model offered to a merchant during their application. For this reason, it is important to understand how a small change to the account setup can save a merchant significant amounts on account fees for accepting cards.
There are three fee models primarily used for the payments fee schedule. The original method that banks used to set merchants up with merchant services was the tiered pricing plan. This program would create several different buckets valued a different discount rates. Every transaction would be placed into one of these buckets based on the payment service agreement. This has been proven to be a very inefficient way to price business transactions.
Flat fee pricing is another method that has become popular with the rise of e-wallet systems. This type of solution charges the business a flat fee for each transaction, regardless of the type of card used by the customer. The simplicity of this system is unmatched, but this simplicity comes at a cost. Since credit and debit cards “cost” the issuing banks a variety of different fees, there leave significant amounts of room for excessive charging for the services. This is especially true with most debit cards that have a minimal cost but can be priced at nearly 3% by e-wallet merchant service processors.
The best pricing model for a business is interchange plus, regardless if it’s online or a brick-and-mortar location. This program charges the merchant a flat fee on top of the customer’s bank card fee. This ensures that the business is always assessed the same fee regardless of the customer’s card type. This program is especially cost-effective for debit cards, where a merchant can save upwards of 3% on a transaction verse a flat fee or tiered program.
Since the transaction fees are flexible, understanding fee pricing and how payments are billed is good for negotiating.
Are Card Services the Best Merchant Service Option?
Card payments have been and remain the most used form of payment by customers for e-commerce transactions. Today, it is important for a merchant to have an online presence to optimize their sales potential. Even though most customers might prefer to shop in person with cash, some prefer the comfort and convenience of shopping online. For this reason, it is essential to offer customers card payment options, but businesses can offer alternative payments in addition to credit and debit cards.
An alternative merchant service can help reduce costs depending on the business type. A high risk business can benefit much more from using electronic check payments than a local restaurant. This is because a high-risk business will face a fee structure that will be much more costly than a local business with minimal payment fee pricing.
It is always a good idea for a business to offer multiple options for payment; some businesses need to understand that there might not be a significant reduction in merchant service fee pricing. Most businesses will understand that customers have a preferred means of making payments, whether through crypto or ACH. Understanding customers’ wants and shopping preferences will help businesses choose the right merchant service.
Offering electronic checks, ACH, and cryptocurrency are a good way to complement retail and online card services. But only offering these alternative card services is not always the best decision due to the high volume of daily card payments. Still, with mostly lower pricing points, it can be a good merchant service decision to set up multiple payment services besides only accepting cards.
Start the Best Merchant Services Today
Businesses looking to accept payments through alternative methods besides physical cash will need the services of a merchant service payment processor. Working with a dedicated company to process online or retail transactions is the best way to minimize costs and lower the fee structures while providing the best customer service option. Please speak to one of our helpful merchant service agents to find answers to any of your business’ questions or for suggestions on payment services that your customers might want.
Our team of payment processing professionals can help merchants with nearly any type of need for their business, from card terminal installation to high risk merchant account services. No matter the needs of a merchant, the team at Allied Payments can help set store owners up with the best payment solution at an affordable price.
Frequently Asked Questions (FAQ)
What is a merchant account and why is it important for businesses?
A merchant account is a specialized type of business account that allows companies to accept and process electronic payment transactions. It is important for businesses because it acts as a bridge between sales and the business’s bank account, handling funds from card transactions before transferring them, thus facilitating secure and swift payment processing critical for business sustainability and growth.
How do merchant account providers facilitate businesses?
Merchant account providers act as intermediaries between the merchant, acquiring bank, and payment service networks. They oversee the transaction process by obtaining approval from credit card issuers, securing funds, and transferring them to the business bank account, while providing additional services and support to ensure efficient operation of financial activities.
What are high-risk merchant accounts and how do they differ from regular merchant accounts?
High-risk merchant accounts are designed for businesses that face higher risks of chargebacks and fraudulent activity. Providers of high-risk merchant accounts often offer more flexible approval processes and tailor their services to the specific challenges these businesses face, ensuring secure transaction processing for industries that are typically not supported by conventional merchant accounts.
How does a merchant account work in the transaction processing workflow?
In the transaction processing workflow, a merchant account functions as a conduit between merchants and financial institutions. When a customer uses a credit card, the merchant’s system sends details to the acquiring bank, which then verifies the card and confirms funds. Once approved, the transaction amount is settled into the merchant’s bank account after deducting processing fees.
What should businesses consider when selecting a merchant account provider?
Businesses should consider factors like processing fees, the range of services offered, compatibility with their business model, security measures, and the provider’s expertise in dealing with their specific type of business, including high-risk accounts if necessary. The right provider facilitates transaction processing efficiently and supports the business’s growth with tailored services.
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If you’re a business owner looking for a solid, reliable merchant services provider—especially if your needs are a bit more specialized. I highly recommend them.
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