How to Choose a Merchant Services Provider
In today's increasingly cashless society, it's even more important for a business to accept credit and debit card payments. To do so, you'll likely need to sign up with a company to help you process these transactions, known as a merchant services provider. Understanding the basics of how to choose a merchant services provider will help you find the right partner for your business's needs.
What is a merchant services provider?
A merchant services provider gives your business the equipment and software needed to accept credit and debit card payments. Then, they handle the processing work behind the transaction. They confirm that the card transaction went through and make sure your business gets the money for the sale. In exchange for this service, you sign a contract and pay several fees, usually including a processing charge on every transaction.
What tools do they offer?
When you sign up for a merchant services provider, some of the tools they offer include:
- Credit card terminal: These hardware systems physically accept card payments in your store. You can buy or lease the terminal from your provider.
- Mobile payment: With these systems, you can set up your smartphone to scan and accept mobile payment from cards.
- Virtual terminal: You could also add software to your computer to turn it into a credit card terminal, where you either enter the card information manually or swipe it using a connected card reader.
- E-commerce platform: If you want to sell through your business website, you can accept card payments online by setting up an e-commerce platform.
- Point-of-sale system: Once you're accepting card payments, you could connect them with a point-of-sale, or POS, system. This allows you to track sales and inventory levels after transactions.
How to choose a merchant services provider
You have a range of possibilities for your merchant services provider. Consider these factors to decide which one to work with.
Payment services provider versus traditional merchant account
A standard merchant services provider sets you up with your own standalone account using its merchant ID number for tracking. The money from card transactions goes here, which then transfers into your business bank account.
You could also work with a payment services provider, or PSP, like Square or PayPal. These services don't give you your own separate merchant account and ID number. Instead, they process your transactions with other businesses before sending the money to you.
A PSP is less expensive to set up. The downside is that your account is more likely to run into issues, such as getting temporarily frozen when the PSP runs into a problem. A PSP could be useful if you only process a few thousand dollars of card transactions per month, but beyond that, it makes sense to have your own merchant account to avoid headaches.
Appropriate software and tools
Not every merchant services provider will offer every tool. Whether you want a good POS system, an e-commerce platform or the option to accept mobile payments, make sure the provider offers all the tools you need.
Fees and processing rates
The merchant services provider will charge a processing fee for each transaction. They could also charge additional fees like an account setup fee, monthly fee, chargeback fee for returned transactions, contract early termination fee, and payment card industry, or PCI, compliance fee.
As you compare providers, don't assume the one with the lowest processing rate is the best deal, given that they might make up that ground with other fees.
Fraud protection and compliance
You should also check to see what the provider offers for PCI compliance and fraud detection. If there's a data breach and you lose customer information, it can damage your reputation and potentially lead to fines and lawsuits. See what kind of protection the processor offers here, such as encryption, tokenization and PCI compliance scans.
Before signing up, check the terms of the contract. Are you obligated to stay on for several years or else have to pay a cancellation fee? Or is it month to month, giving you the option to move on if you're not satisfied? Also be on the lookout for contracts that renew automatically.
If your card processing system goes down, that's time your business could be losing out on sales. Check to see how available the company is for quality customer service. Ideally, they should be available 24/7, especially if you sell online. This way, you can get a problem addressed as soon as possible, regardless of when it arises.
Considering the choice carefully
Take your time with this decision and understand all the details before joining—it's a lot harder to change your mind after you've signed a contract. Consider speaking with your business banker as part of your research to see if they recommend a particular service.
Financial insights for your business
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.