Fintech Insights

Merchant payment processing and services simplified

July 10, 2019

Are you interested in exploring the possibilities of accepting electronic payments such as debit and credit cards for your small business? Confused about merchant accounts, payment service providers, gateways and the like? Here are some things you should know about merchant payment services for small business before you dive in.

Understanding merchant payment services

The basics of merchant processing are simple enough – you sign up with a merchant payment provider so that you can accept credit cards, debit cards and other forms of payment from your customers (and receive payment yourself for all of those payments). The payment processor collects fees from your transactions and deposits the rest in your business bank account. However, there's more than one road to accepting payments.

Below, we outline several different types of accounts that you might consider, each with their own specialty. By choosing the option that best fits your business, you will be able to:

  • Save money
  • Access more useful data
  • Find solutions tailored to your own business model

Popular merchant payment service options include:

  • Retail merchant accounts Retail merchant accounts are designed to help the average product-oriented business with a physical storefront. The merchant account makes your business the merchant of record. The accounts may be provided by a third-party processor or an acquiring bank and serve to connect you to the card networks and issuing banks. This traditional type of merchant account comes with several options for card-reading hardware such as the basic POS system or credit card terminal. These systems are designed for dealing with physical cards and related security issues and must be upgraded as new requirements come about.
  • Internet merchant accounts Internet merchant accounts are designed specifically for e-commerce businesses that process credit cards online. If your business is primarily or entirely online, this is a cost-effective solution that provides multiple payment options and a secure online portal for customers to make purchases. Note that payment options do differ between online and retail markets; it's more likely for online consumers to prefer PayPal compatibility, for example.
  • MOTO (Mail order/telephone order) merchant accounts These accounts are designed specifically for telephone or mail order companies. These days, such services are often bundled into online or retail options, but they are sometimes available as a standalone service.

Understanding fees for your business

Merchant accounts can be intimidating to younger businesses because of their fee structures. These accounts use several different types of fees, which are organized based on the particular type of account and the business. Looking at the total amount of fees is important when considering the overall cost of a merchant account, but it's not the only factor. Also take into account the additional value-added services that are provided with your merchant account. Common fees include:

  • Transaction fees::These are applied to each transaction. They typically come in two parts: a percentage of the actual transaction amount and a flat fee for each transaction. Both the percentage and the flat fee can vary considerably based on a number of different factors including the size of your business and your processing volume.
  • Minimum fees:These fees are typically applied each month. The service provider may charge this service fee and may offer discounts or waivers for new businesses.
  • Statement fees:Think of these as document processing fees that are also charged each month. These fees may shift based on how you accept your fees.
  • Gateway fees:This monthly fee may apply if the merchant services provider uses a third-party payment processor to access the card networks. Sometimes merchants use a third-party gateway to access specific payment processing features they can't get with the merchant services provider. Or the merchant services provider may act as a middleman and only offer third-party gateway accounts.
  • Incidental fees:These fees are a bit more miscellaneous and vary greatly from one provider to another. Some examples include fees for chargebacks, customer service or add-on services.

Merchant payment services and risk

A competent payment processing service will be able to provide details concerning its various fees and how they apply to your unique business situation. However, keep in mind that merchant accounts also depend on your situation. Most account fees are adjusted for risk based on the type and volume of business, your credit history and your experience with merchant accounts in the past. Always ask for more information and compare costs to find out how factors like risk will affect you.

Ready to learn more? Reach out to us with your questions.