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Merchant services providers: Who they are and how they work.
Think back to the way you felt on your first day of a new job. It may have seemed like you suddenly landed in a new country with customs, rules, and requirements that were a total mystery to you. Fast forward to the present and the situation is remarkably similar now that you’ve decided to accept non-cash payments at your business. You can consider your merchant services provider to be the conduit to accepting a wider range of payments now to ensure your future success.
Basic definition.
Just as someone in human resources may have assisted you in navigating a past workplace, your merchant services provider will function as a crucial guide through today’s ever-changing payments ecosystem. They will, in effect, be the middleman between you and the other players in the payments universe, providing you with a complete suite of related services. These may include but are not limited to the following.
Point of sale (POS) software and hardware.
Access to a payment gateway.
Business data you can leverage to grow your business.
To avoid any confusion, merchant services providers are sometimes also known as merchant account providers, payment services providers, and gateway providers.
Types of merchant service providers.
Not all of these entities are created equal. In fact, there are several different types of MSPs. Let’s take a look at just a few.
Merchant account providers. When you begin to accept non-cash payments of any type, you need an account that the funds can be transferred into once transactions are approved. At a minimum, a merchant account provider will provide you with this merchant account, which is different from your regular business bank account.
Payment service providers. It’s not a hard and fast rule that you must have a dedicated merchant account for your business. If you go with one of these companies, your account can be combined or aggregated with those of other merchants. As a result, you will not have to pay ongoing account fees or sign a lengthy contract. However, you will not have your own unique merchant ID number, and your account will be more susceptible to suspension or closure. Furthermore, you will not receive the same caliber of customer service as you would with a dedicated provider.
Payment gateway provider. Necessary for sellers who do business online, a payment gateway is the secure link that integrates with your ecommerce payment platform and allows your customers to make secure payments over the internet. While some of these providers will include a merchant account along with the gateway, this is not always the case. In some instances, you will need to obtain one from another provider.
If you are unsure of which of these broad categories to choose, a good starting point is to evaluate your business carefully, both as it is now, and as you foresee it to be two or even five years down the road. The key is to strike that perfect balance, not overextending your resources to go for all the bells and whistles while simultaneously making a choice that will grow along with your expanding organization.
Different types of merchant services.
Since businesses come in all shapes and sizes to serve a seemingly infinite group of unique customers, it stands to reason that what one business needs in a merchant services provider may be quite different from what the store down the street requires. Furthermore, as shopper behaviors and technologies evolve, it is almost certain that the options offered by these various vendors will also need to morph. For the time being, however, the following are the most commonly sought merchant services by retailers wishing to accept non-cash payments.
Merchant accounts. Possessing a merchant account enables you to have your own unique merchant ID number, which helps provide stability and credibility to your business when it comes to your relationships with payment processors. Furthermore, once you have one, you are less likely to be defrauded.
Credit card terminals. Although some of your payments may be online, you may still have a physical r location where customers can make in-person purchases. If so, you’ll need devices to read their cards and transmit their information securely to your processing company. These units may be stationary (attaching to a landline phone), or wireless and wifi-enabled. Modern solutions are also equipped with near-frequency communication (NFC) technology that allows them to accept contactless payments from smartphones, smart cards, and wearable devices. These terminals may be bought or leased from your provider or a third party, although the latter is generally not a cost-effective decision. In either case, payments software will need to be loaded onto your equipment before any transactions can be processed.
Point-of-sale (POS) systems. These enhanced terminals not only accept payments but also perform a myriad of other tasks that can help you run all aspects of your business more efficiently. Most current solutions come standard with features such as inventory tracking, employee management, sales forecasting, and report generation. In addition, POS systems are designed to integrate with software that you already use, like QuickBooks. Your payment services provider should also be able to offer you add-ons to enhance your POS system including receipt printers, cash drawers, tablet mounts, and barcode and check scanners, as needed.
Mobile payment systems. Customers are not the only ones who have recognized the advantages of using smartphones in business. Some merchants are now using their smartphones or tablets as credit card terminals as well. Intrigued? All you need is a mobile card reader that connects to your device and an app that communicates payment information to your provider’s network.
Payment gateways. Since not all retailers sell goods or services online, merchant services providers usually charge extra for this capability. Once it is in place however, your customers can securely make online payments because their details are encrypted by the gateway’s software. In recent years, sellers have also come to use the gateway feature to implement recurring billing for services such as memberships and subscriptions, thereby simplifying the process for buyers and sellers alike.
Virtual terminals. At times, your laptop or personal computer can also become a vital payment tool and virtual terminal software is what allows this to happen. If you ever take credit card payments over the phone, for instance, virtual terminals allow you to manually enter a customer’s card number. Furthermore, you can purchase a card reader that allows you to also accept card-present payments, whether tapped (NFC), dipped (EMV), or swiped (traditional magstripe cards).
Online shopping carts. These provide a digital repository where your customers can place their impending purchases. When you add shopping cart functionality to your ecommerce site, you can also capture vital information about buyer behaviors, and even communicate with potential customers who have clicked away without completing their purchases.
Recurring payments. When customers choose this option that is provided by most merchant services providers, they give their checking account number and routing information, authorizing you to withdraw payments once, or on an agreed-upon schedule. Choosing a provider who offers this service gives your customers yet another way to settle their bills that is worry-free and secure.
In many respects, you can consider your merchant services provider to be the modern business equivalent of that human resources employee who helped you during the first day of that job you started years ago. Choose one wisely, and your journey throughout the payments processing ecosystem will be smoother, more secure, and more rewarding for your customers and your bottom line.