In addition to the way people’s behavior has changed in stores, more and more transactions are conducted online. It’s not hard to see why. Online transactions offer a level of convenience and speed that most brick-and-mortar stores can’t match.
But with all of the innovation in the way that we do business, one thing hasn’t changed. Businesses still need to collect money for their goods and services to function. The way that merchants get paid today is through merchant processing services.
This article will cover merchant processing services. We’ll explain what that category includes. We’ll also cover the benefits of merchant processing. Finally, we’ll look at the things you need to know to find the best merchant processing service. Use this information to ensure that your business produces the best possible returns and runs as smoothly as possible.
What is Merchant Processing?
Broadly speaking, merchant processing is a term that is used to describe how merchants get paid for goods and services they sell. There are several different aspects of merchant processing services. Moreover, different companies offer different combinations of services. Some of them only offer one service. Others deal in total packages that cover all of the merchant processing needs your business might encounter.
We’ll take a look at the different elements of merchant processing. These are the different pieces that work together to help your business get paid for your hard work and effort.
Payment Processing
The most common type of merchant processing is payment processing. This is the sequence of events that you use to get paid when someone uses their credit or debit card. As a result, it’s a vital component to any modern business.
Payment processing services take the information from your customer’s card and the transaction you’re trying to process. They send a request to do the transaction to the card’s payment brand, like Visa or Mastercard. The payment brand then forwards the request to the issuing bank. The bank approves or denies the request. This information goes back to the payment brand and then is forwarded back to your payment processing service.
That series of steps is what is known as authorization. It confirms that the customer has sufficient funds or credit to make the purchase. The next steps are known either collectively as settlement or as settlement and funding.
These steps are the process of transferring money from the cardholder’s bank or credit account to your account. Your payment processing service handles that as well.
Merchant Accounts
The next element in merchant processing is a merchant account. This is a special type of credit account. It gives you access to the funds that you generate from credit card sales before the funds actually settle. As a result, you get access to your funds much faster.
The way that it works is that once the transaction is authorized and approved, your merchant account provider credits your account with the value of the sale. The account provider is then repaid by the payment brand or issuing bank.
Once the money is in your merchant account you can treat it like regular funds. You can transfer it to another bank account. You can also use it to cover things like inventory orders or payroll. The primary benefit you get from a merchant account is the speed at which the funds become available.
Merchant services providers will charge you a fee for payment processing and merchant accounts. Therefore, you’ll want to carefully compare all of your options to ensure you’re getting the best value for your money before you sign up with a merchant processing service. It’s important to keep in mind that the cheapest merchant processing service might not be the best merchant processing service.
Payment Gateways
Payment gateways are a special type of processing service. They’re used to conduct transactions online. They act as your point of sale system for your website. The payment gateway encrypts your customer’s information before sending it to your payment processing service. This helps protect your customer’s data. It also shields you from risk if your customer’s account information gets stolen.
Payment gateways aren’t used by every business. Some businesses do sales online and interface directly with their payment processing service. Other companies don’t bother with online sales, and thus don’t need a payment gateway. This example shows why it’s important to consider your business’s specific needs before signing up for merchant processing services.
What are the Benefits of Merchant Processing?
There are many benefits for merchant processing services. Different services include different features. Some offer things like payroll software, scheduling, clock in and clock out features, analytics, inventory tracking, and more.
However, we’re focusing on the benefits that all merchant processing services provide. Merchant processing solutions will be different for different businesses. However, all merchant processing agreements offer the benefits of speed, convenience, and savings.
Speed
The first benefit of merchant processing services is speed. They get you access to your funds much faster than other ways of getting paid for card transactions. Merchant account processing fees are usually well worth the cost for a business to get access to its money faster.
These services are also faster to set up. That means you can be up and running your business faster than if you tried to set up a payment processing system that didn’t use a merchant processing service. As a result, you can start turning a profit sooner, growing your business.
Finally, merchant processing services also make the transaction process faster. This helps your business in several ways. First, it reduces the amount of time a client is standing in line to pay for your goods or services. This makes visiting your location a better overall experience. It also gives you the information you need to know if you should go ahead with the sale or not. This allows you to quickly determine if the customer has the necessary funds and/or credit to pay for your services or goods.
Convenience and Savings
Merchant processing services also create benefits in terms of convenience and savings. You can set up a merchant credit card processing system that directly interfaces with payment brands yourself. However, this is hard to do. You need to meet specific security standards. You also need to negotiate agreements with the different payment brands.
All of those steps add up to a hassle. That means, for most businesses, it’s simply not worth it. It’s much easier to pay a merchant processing service to take care of those things for you.
You also save a lot of money compared to setting up a direct link to payment brands and clearing houses when you use merchant processing services. These set-ups require costly and specialized labor. You might need to hire programmers, engineers, and other services to get your connection set up. These skilled laborers demand premium payment for their services. Merchant processing services handle all of that for you, so there’s no need to spend your valuable money on this kind of labor.
How Do I Get the Best Merchant Processing Service?
Getting the best merchant processing service is a tricky proposition. After all, every business is different. That means every business has different needs. It also means that every business can benefit from different features that merchant processing services offer.
When you’re doing a merchant processing comparison, it’s easy to become overwhelmed. Different companies price their services according to different scales. That can make it hard to do an apples-to-apples comparison of different services.
The best way to determine the most cost-effective merchant processing service for your business is to look at the total percentage of your transactions that will go toward paying for processing services. This system is best for a few reasons. First, it lets you make an apples-to-apples comparison of the total cost of services.
Second, most merchant processing fees are determined based on the volume of transactions. That means looking at the percentage of transactions that go toward paying for services will give you a more accurate picture of how the processing service relates to your operating budget and overall bottom line.
Keep in mind that looking at the percentage of transactions to cover the cost of processing doesn’t include other things you may want to consider. For example, most merchant processing companies offer a wide range of services and software. Some might offer analytics software that helps you grow your business and make informed decisions. Others offer payroll and scheduling software to simplify operations. You should consider whether these features will add value to your business, and then consider that when you’re deciding what merchant processing service to use.
Transparency
The first thing you should look for with any business you work with is transparency. There are lots of merchant processing companies. Some of these companies are better than others. Some of them have hidden fees and different ways of charging you money. Many don’t list these fees on their site.
That means you’ll need to collect some basic information about your business. This information should include the average number of monthly transactions you make, the value of those transactions, the payment brands those transactions occur through, and your current cost for processing services.
Use that information to inquire on the phone or through email with sales or customer service reps from the different companies. Get them to disclose a list of all the fees you should expect to pay. Is there are start-up fee? An early termination fee? A PCI compliance fee?
These vital questions will let you determine the total cost of the processing service. If you just look at the per-transaction fee structure to determine what company to use, then you might find yourself paying more than you have to.
Reasonable Fees
You should make sure the fees your merchant processing company charges are reasonable. For example, fees like startup fees are mostly junk fees designed to leech money from your business.
Moreover, most companies charge a fee per transaction. You should look for companies that use interchange-plus pricing. That means the company charges you the cost of doing the transaction plus a set amount. This pricing model ensures predictability for your business. This, in turn, allows you to more effectively plan your growth, giving you the best chance at success as possible.
Also, you need to consider all of the different terms of the agreement. For example, some merchant processing services also provide point of sale systems. You need to ask if you’re leasing their hardware or software, or if you own it. This doesn’t just affect how much you’re paying, but it can have tax implications because of the difference between paying a lease and writing off depreciated value of equipment.
Needs
Finally, consider your needs. This will help you decide what company offers the greatest value. For example, a company that doesn’t operate a physical store won’t benefit from a free point of sale system. In the same way, a company with zero or only a few employees might not need scheduling and payroll software.
You should also figure out how much of your sales come from different payment brands. For example, if only 3% of your sales use an American Express card, then it might not be worth paying an extra fee to access that payment brand. However, if AmEx makes up 40% of your transactions, then the fee is certainly worth it.
In the end, only you can determine the best merchant processing service for your business. However, if you use the information in this article to ask the right questions, you’ll be well on your way to making the right choice. It’s your business, make sure it’s running at peak efficiency by choosing the right merchant processing service.