Merchant services is a broad category of financial services in the United States intended for use by businesses. They are authorized financial services that allow a business to accept a transaction payment using online ordering or point of sale systems. Merchant service providers work as a mediator between the bank, a person or business wanting to receive funds, and the person or business looking to purchase products or services. Types of merchant services include:
- Credit and debit cards payment processing
- Check guarantee and check conversion services
- Automated clearing house check drafting and payment services
- Gift card and loyalty programs
- Payment gateways
- Merchant cash advances
- Online transaction processing
- Point of sale systems
- Electronic benefit transfer programs
How merchant services work
Merchant services dictate how a business accepts payments, the type of payments accepted, and which provider is chosen. The process is initiated by a customer paying for a product or service and ends when funds are deposited in the business’s bank account. A business needs a card processing terminal and the technology necessary for accepting debit and credit card payments. As an example, a merchant service comes into play during this process:
- A customer’s credit card is swiped and the information is entered into a credit card processing terminal.
- The payment processor transmits the data and checks with the customer’s bank before accepting or denying the transaction.
- If the bank approves the customer’s transaction, the business can accept the payment through the payment processor and the purchase will be complete.
- Once the purchase is complete, the payment processor takes a fee. A merchant service provider typically charges a fee to process payments.
- The remaining funds are deposited into the business’s merchant account, meaning the bank account required to accept payments.
Merchant service providers
A merchant service provider provides businesses with a merchant account and credit card processing services. A few services it offers include:
- Accepting payments from customers via credit, debit, and electronic payments
- Securely managing PCI compliance to keep customer data safe
- Providing a business with technology to track payments, understand business data, and collect invoices.
When considering merchant service providers, taking into account the fees a provider charges is critical as the fees can rack up quickly. Some common fees charged by a merchant service provider are setup, equipment, monthly service, transaction, and credit card processing fees. Additional fees may include PCI compliance, minimum processing, statement, cancellation, and account setup fees. PayPal, Square, Chase Merchant Services, and Cayan are a few vendors that offer merchant service capabilities.