If you’re like most businesses, we’re betting you want to accept cash and credit cards at a minimum. While in the past it was safe to say that cash was king, the times are changing. Card-based transactions are more popular than ever. Research from TSYS shows that 82% of consumers prefer to pay withcredit cards and debit cards while only 10% of consumers prefer cash.
To run a more profitable business, you need to accept electronic payments. To do that, you need to sign up for a merchant account with a merchant service provider (MSP). At this point you might be asking yourself “What is a merchant account?” and “How do merchant services work?” And that’s the point of this article.
We’ll explain everything you need to know about merchant services and accepting credit cards. We’ll also give you tips for vetting MSPs so that you can choose the right one for your business.
The phrase merchant services is a technical term for the financial services that allow a business to accept credit card transactions, as well as other electronic methods like debit cards and mobile payments. These services can cover everything from software to hardware to specific products that enable online or mail order sales.
To thoroughly understand how merchant services work, it’s helpful to know how credit card processing works at a high-level:
With the above in mind, the term “merchant services” refers to your merchant account. Typically businesses get a merchant account from a Merchant Services Provider (MSP). MSPs are also sometimes known as an Independent Sales Organization (ISO). The merchant account is an intermediary between your business bank account, the credit card networks, and the customer’s issuing bank. Without one, you aren’t able to accept credit card and other electronic payments.
Due to their critical role in the credit card transaction process, MSPs typically offer a variety of other payment processing products. In fact, these additional areas of service are one of the main ways that MSPs compete. When you’re comparing MSPs against one another, it’s a good idea to look at these services to find the most value for your business.
With that said, here are some things an MSP could offer you:
Many MSPs will sell you or lease you payment processing hardware in the form of a credit card terminal or credit card reader. This reader will need to connect to the internet to transmit payment data to your merchant account and along to the rest of the parties involved in a card transaction. So, in addition to your card reader, you’ll also want a modem or router that your reader can plug into with an ethernet cable.
As far as leasing versus buying a terminal outright, the choice is up to you, but we recommend purchasing a terminal if it fits into your budget. This will save you money in the long run as a multi-year lease will often result in you paying more than the cost of the reader. It’s also worth noting that you can also buy a reader from a third-party seller. However, you’ll need to ensure it’s compatible with your point of sale system (POS) if you have one. It’ll also need to be reprogrammed to work with your payment processor’s network.
Lastly, to future proof your business as much as possible, you’ll want to ensure that your hardware works with EMV chip cards, as well as NFC payment methods like Apple Pay and Google Pay.
