“Merchant services” describes the financial tools and systems that help business owners process electronic payment transactions. Merchant services providers typically offer payment terminals and inventory-tracking solutions along with things like fraud protection and loyalty program synchronisation tools.
Merchant Services Provider Basics
A merchant services provider must offer a few basic things in order for you to be able to accept payments online safely. Whether or not the company offers additional merchant services, these tools and systems represent the bare minimum:
To process credit and debit cards, you will need a merchant account with an acquiring bank to handle authorisation requests and settlements. This account’s only function is to process card payments. You don’t have access to the funds until they are released into your business bank account and can’t use this account to make payments or pay bills.
There are two ways that merchant service providers give business owners access to a merchant account:
- The merchant services provider applies for a dedicated merchant account on behalf of the business owner with one of their affiliated acquiring banks. The merchant is assigned a merchant identification number (MIN) and is held directly responsible for chargebacks and fraudulent transactions.
- The merchant services provider has its own merchant account and uses this account to process multiple merchants’ payments. This is referred to as an aggregated merchant account. In this model, the aggregator holds merchants responsible for chargebacks and fraud and can protect itself by freezing your account.
Once you have a merchant account, you will need a payment terminal to accept payments made with a credit or debit card or alternative payment methods like digital wallets. The payment terminal captures electronic payment data and routes it through the relevant payment processing network for authorisation and settlement.
Physical POS System
For brick-and-mortar sales, you will need a physical point of sale (POS) terminal that customers can use to swipe, dip or tap their cards. Thanks to the rise in mobile payments and QR code payments, POS terminals today have near-field communication payment capabilities.
Online Payment Gateways
For e-commerce sales and mail order and telephone orders (MOTO), merchants will need a virtual terminal that can process payments without a physical card being present. Typically, this is a web checkout form that routes the customer’s payment information through a secure global payment gateway.
Whereas cash sales don’t leave a mark (other than a potential transfer of germs), electronic payments come with the advantage that they are recorded automatically. As soon as an electronic transaction is processed, the amount, date and time of that transaction appear on the merchant and customer’s bank account statements.
Taking advantage of this fact, merchant service providers offer software that lists all of your transactions and compiles the information to give you sales totals for the day, week or month. This log can also be used to verify a purchase in the case of a return.
If you use bookkeeping or accounting software, your sales software can be integrated with your transaction data—eliminating the need to enter transaction amounts and sales tax manually.
Any business that captures payment information or processes payments has to meet payment card industry data security standards (PCI-DSS). These standards cover things like the encryption of sensitive customer information and limiting employee access to card numbers.
If you use a hosted payment gateway for online payments and customers leave your site to pay, PCI compliance applies only to the third-party host. However, if you use a non-hosted or API-hosted payment gateway, you will also need to ensure PCI compliance on your end.
Every merchant services provider must offer customer support to its merchants. If you have a technical issue, want to approve an unusually high-ticket order or need to reverse a transaction due to suspected fraud, you’ll need a live person to solve the problem as soon as possible.
For best results, look for a merchant services provider that has people online 24/7 in your country who can help you resolve an urgent issue. A payment processor that sends you to a help centre or relies on chatbots for customer support could cause you to lose a significant amount of income while you wait for an issue to be resolved.
Qualities of Comprehensive Merchant Service Providers
We’ve covered the basic merchant services that are necessary for credit card processing. However, for serious businesses, it’s essential to have a merchant service provider that offers the full range of systems and tools.
Adjustable Fraud Prevention Tools
Adjustable fraud prevention tools are extremely helpful if you accept credit cards from around the world. These tools allow you to set thresholds for transaction volume and ticket size and decide whether to approve, flag or block specific transactions.
The alternatives to adjustable fraud protection are:
- Having no fraud protection (leaving you and your customers vulnerable to theft)
- Having fraud protection that’s too rigid (causing you to miss out on legitimate sales)
Customers can force a credit card chargeback if purchases were made using a stolen card, there was a problem with their order or they are trying to avoid paying for a purchase (known as friendly fraud). Chargebacks are very expensive for merchants and can even lead to industry sanctions. Chargeback mitigation tools intercept chargebacks before they go through, allowing you to solve the problem directly with the customer.
Merchant statements really should be considered a basic service, but many aggregate payment processors don’t offer them. These monthly statements provide detailed information about each transaction—the transaction amount and the types of fees paid—along with a monthly summary of income and fees. Having this information can help you identify unnecessary fees and look for ways to reduce your processing costs.
Sales Reports and Analytics
As they say, “knowledge is power”, and that’s where sales reports come in. Detailed reports and analytics show you how you’re tracking from one day, week and month to the next, helping you identify which strategies are working best to help you improve your business operations.
Customer Contact List
Having a list of your customers and their contact details can be helpful if you use strategies like email marketing, memberships and loyalty points. Merchant services providers who offer the back-end code to compile this data save you from having to pay for an additional plugin.
Loyalty programs foster customer loyalty and encourage customers to spend more. A payment processor with comprehensive merchant services can integrate your loyalty program with your checkout, ensuring that customers get points for every Euro they spend.
Subscription business models are becoming popular as a way to generate reliable monthly recurring revenue (MRR). If you would like to offer memberships, pay-for-access or subscription products, look for a merchant services provider that offers recurring billing.
Credit card processing is the mainstay of merchant services, but some providers offer financial technology solutions that go beyond the basics. At Unicorn Payment, for example, we offer an optional e-wallet service that allows you to make and receive payments online from a linked bank account.
Why Should You Consider Merchant Services?
The first and most important reason to consider merchant services is to grow your revenue with electronic payments. According to a 2020 study, cash payments decreased from 26% to 19% from 2019 to 2020. Moreover, businesses see their revenue increase by 17% (on average) when they start accepting digital payments.
The second reason to consider merchant services is to gain the insights you need to help you grow your business. Once you know how much you’re making and how much you’re spending to make it and can see your sales trends over time, you can work out ways to capitalise on your strengths and remove any unnecessary costs.
Strong Merchant Services for Strong Business
There are hundreds of merchant service providers out there, but only a few provide the full range of services that you need to grow your business. When choosing a provider to partner with your business, look for one that:
- Offers flexible, scalable and customised solutions
- Accepts payment methods from around the world
- Has low, transparent fees
- Has 24/7 live customer support
- Is invested in helping your business grow
Once you find that provider, you should not only see a growth in sales and profits but will feel confident and supported knowing that your merchant services provider has your back. And for global entrepreneurs, that assurance is priceless.