Merchant Services and Your Business: An All-Around Review
Merchant Services and Your Business: An All-Around Review
Monday, January 22nd, 2024
What are Merchant Services?
Merchant services generally encompass the software, equipment, and technology used to accept and process debit and credit card payments.
Merchant services are traditionally seen when shopping in person; however, most tend to forget that even online shopping requires businesses to have merchant services.
In today’s shopping environment, it’s nearly difficult to find businesses that don’t accept debit or credit cards in any format.
Because of this, it’s vital to know the benefits of merchant services. This applies to current and soon-to-be business owners.
Before discussing the benefits and factors to consider regarding merchant services, it’s crucial to understand the players in the merchant services industry and two key concepts: pricing/costs and equipment.
The Sea of Merchant Services Providers
What’s great is that you’ll find no shortage of companies willing to provide your business merchant services.
Some of the most popular merchant service providers include:
- Chase
- Clover
- Intuit
- Paypal
- Square
- Stax
- Stripe
- U.S. Bank
Each company is different in that it may or may not outsource part of its services, whether that’s outsourcing equipment or using another company’s network to process card payments.
Each will also offer varying software and added services that can help enhance the overall experience your customers and you have.
You should aim to learn about the options available before fully committing to the first company you come across.
Pricing / Costs
Often interchangeable, pricing/costs refer to the processing fees that merchant service providers charge you to complete a transaction.
The processing fees vary from one merchant service provider to the next, and this will be discussed in further detail shortly.
That said, the processing fee generally includes everything involved in processing a debit or credit card payment.
Grossly simplified, this process involves many factors, 2 of which include accounting for the fees the issuing card charges and the network needed to move funds from one bank to the next.
Instead of charging you for the varying parts of this process, you’ll typically be charged a fixed or varying rate for each transaction.
Equipment
When it comes to the equipment used to process card payments, the options are truly endless nowadays.
Every piece of equipment or method of payment will fall into one of the three categories:
1. On-The-Go Payment Solutions
2. Debit and Credit Card Terminals/Point-of-Sale Systems
3. eCommerce Solutions
On-the-go solutions include smaller, portable options available to business owners. These lighter options can be a device that attaches to your phone or one that is handheld.
Card terminals/point-of-sale systems are bigger in both size and function, meaning they’ll have many more capabilities, such as printing receipts and taking tips, similar to those you see at restaurants and stores.
eCommerce solutions are the payment platforms you experience when shopping or ordering online from your favorite restaurant or store.
While none of these equipment categories are set terms, these terms are largely used to distinguish one form of payment from the next.
Benefits of Having Merchant Services
1. Ability to Accept Debit & Credit Cards
While it may sound obvious, the ability to accept card payments is the most significant benefit. Not being able to accept card payments can result in your business missing out on many potential sales.
Not to mention quicker check-out times, which ultimately helps increase revenue since you’ll help more customers.
You can even take this a step further and say that it can help you accept all types of currency (from travelers using their home country’s cards, of course).
2. Software Capabilities
Many merchant service providers offer software capabilities that help you analyze your customers’ spending habits.
This can help you determine your best and worst sellers, which is extremely helpful data when evaluating inventory.
Other important information you can uncover is the busiest time of the day and the average purchase ticket.
3. Customer Convenience
Customers often prefer to frequent businesses that can turn their shopping trip into a quick, easy, and satisfying experience.
Being able to get in and out in a timely manner can make all the difference to a customer, especially one in a rush.
This is especially important when processing large transactions since customers don’t want to carry hundreds or thousands of dollars in their wallets.
4. Establishes Business Relationship
Many merchant service providers partner with banks if they aren’t already one, which can help establish business relationships.
This can open the door to lending and business banking opportunities you wouldn’t otherwise have been aware of.
Even if you already have a business bank account, you may find that another bank can better meet your business banking needs.
5. Emits Professionalism
Offering your customers such options helps make your business appear more professional, which does sway consumers.
Regardless of how they do it, businesses that emit professionalism will be more successful in the long run.
Equipment alone, for the most part, can do this, whether it’s a portable card terminal or a stationary, touch-screen terminal.
Factors To Consider
1. Payment Processing Fees
Payment processing fees are a part of the business, and these fees can be charged differently from one company to the next. More commonly, this fee is paid per transaction.
You’ll typically be charged between 2% and 3.7% plus 10 cents or more per transaction.
Keep in mind that certain card issuers (most likely AMEX and Discover) may result in higher processing fees due to their network, which leaves you with less after a transaction.
2. Initial Setup Costs
You’ll most likely need to purchase a device to accept card payments, and you’ll make either a one-time or monthly payment. There are device-less options for accepting card payments; however, these options will cost you more in terms of fees.
Devices can range anywhere from $20 to upwards of $500 depending on what capabilities you want the device to have.
Some companies may also require a contract and even charge initial set-up fees, so consider this when deciding between companies.
3. Chargebacks
Chargebacks are common when having merchant services. Chargebacks occur when customers dispute a transaction, which can happen for various reasons.
Think fraud, unsatisfied customers, processing errors, and products/services received that weren’t as described, among other reasons.
Generally, these funds will be held or returned to the customer pending the result of the dispute, which can be frustrating for you.
4. Additional Work Required
Adding an additional layer to your business will inevitably result in more work throughout the fiscal year.
Whether it’s you or a CPA who manages your taxes and accounting, you’ll have to figure out how to plug this income into your company’s finances.
It could be that this is an easy fix, or it could mean changing how you manage your company’s accounting or taxes altogether.
Additional Good-to-Knows
These are a few good-to-knows to inquire about when looking into merchant services since they can help you decide between companies.
Some companies can give you a discounted payment processing rate depending on how much you run through the service annually. This will lower the overall fees you pay.
Tiered rates often consider the total number of transactions and/or overall dollar amount transacted.
You could be subject to early termination or monthly service fees for utilizing a company’s merchant services.
Lastly, select merchant service providers don’t offer their services to companies in specific industries, such as ATM-based businesses or those in adult entertainment.
Should you get merchant services for your company?
If you deal with customers face-to-face, then in most cases, yes, you should. Accepting card payments can dramatically change the trajectory of your company’s revenue for the better.
Setting aside e-commerce and businesses that heavily rely on bank-initiated payments (such as trucking or real estate), most companies can benefit from having merchant services.
While there are costs to having merchant services, the benefits can often outweigh the inconveniences you may experience.
More importantly, you may lose customers who prefer to pay with debit or credit cards, which can be many, depending on your industry.
Even if you think customers will pay with a card occasionally, it’s still worth providing that option to potential customers.
Final Thoughts
For most businesses, merchant services can be viewed as a no-brainer. Anything that can increase your top line is always worth considering and exploring.
In your search, check out numerous companies and their offerings to see what’s available and possible.
There is always a high chance that a service or product you’re unaware of can make your life as a business owner much easier.
If you decide that merchant services are right for your business, consider the overall relationship, equipment, and service a company can offer.
After reading this, are you considering merchant services? Why or why not? Do you already have merchant services?
Let us know your thoughts in the comment section below as we always look forward to reading what you have to say!
Thank you for reading, and remember to Stay Financially Invested!
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