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Understanding Merchant Services: What Is a Merchant Service Provider?

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Now that you have decided to start your own business, if there’s one thing you need to be sure of, it’s that you have a variety of payment methods. Even though cash has always been king, times have changed, and more and more people are looking to pay using cards.

In fact, over 80% of consumers prefer credit and debit cards over cash. This means accepting electronic payments is one of the most important things you can do for your business right now. To do this, you need a merchant account from a merchant service provider.

What’s a Merchant Service Provider?

What are merchant services anyway, and how does it work?

Merchant is the industry term used by payment processors to refer to their customers. In this case, merchants are businesses that accept electronic payment methods, such as debit and credit cards. The merchant service provider offers the systems and products that make these payments possible.

To better understand how these services work, it’s imperative that you understand how electronic payments work, more so credit card processing.

Once your customer pays for their purchase, they swipe the card at the credit card terminal. The terminal will send the details to the merchant account and request for payment authorization.

The processor will then send information to the card association, which could be Visa, Mastercard, among others. The association will then pass that information to the card issuer. The issuing bank will then approve the transaction, and the approval message will be sent back to your terminal.

Merchant Service Providers are also known as Independent Sales Organizations. They serve as the intermediary between a credit card network, your business bank account, and the customers’ issuing bank. You cannot accept electronic payments without one.

Different Types of MSPs

There are two categories of merchant service providers — payment service providers and merchant account providers.

Merchant account providers are very common, and they offer additional services apart from providing the merchant account. However, they don’t process transactions for their customers, unlike direct processors.

Payment service providers offer services to customers who’d rather not get a merchant account. A good example of this is PayPal.

Payment service providers group customers together and put them in one large account. This essentially brings down costs and doesn’t go through the lengthy processing merchant accounts go through.

Which One Should You Choose?

Each option has its pros and cons, and you need to evaluate what your specific needs are.

Merchant accounts that use interchange-plus pricing will offer you personalized services, fair pricing, and additional services that will help you run your business successfully.

If you are just a small merchant that only transacts once in a while and have no need for all the tools and services offered by a merchant account, then you can use a service provider. Still, if your business has the potential to grow and expand in the future, it may be better to start out with a merchant account from the word go.

What You Need to Know About Credit Card Processing Pricing

This is an issue that most business owners find hard to understand and with good reason.

The one thing you realize after looking at a credit card statement is that you have no idea what you’re looking at. For this reason, we’ll take you through the top three popular ways that merchants process pricing.

The Flat Rate Pricing

Payment service providers usually offer flat rate pricing. This means you pay the same price for all transactions regardless of the payment method or the size of the payment.

You may encounter higher rates with card-not-present transactions, but they are charged higher to discourage them and encourage customers to use swiped transactions. This is due to the fact that most credit card fraud happens through card-not-present or CNP transactions.

Tiered Pricing

This pricing method is exactly what it sounds like. The tiers depend on debit versus credit card transactions, swiped versus CNP transactions, and transactions settled in 24 hours, versus longer.

Interchange-Plus Pricing

This is by far the most transparent of all and the most common of the three. The merchant service providers indicate the rates and markup per transaction, which gives customers a clear picture of what they are paying exactly.

What Else Do Merchant Service Providers Offer?

MSPs offer a variety of payment processing products, and it’s critical that you take a look at them when comparing merchant services.

Payment Processing Hardware

Most merchant service providers sell or lease payment processing hardware to businesses. This could be a credit card terminal or reader. Credit card readers must connect to the internet to process payments and send payment data to the merchant and other parties involved. This means you need a router or modem together with your reader.

Payment Gateway

Payment gateways are web services or software used in conjunction with merchant accounts to process payments. This is suitable for an eCommerce website or an online business. Advanced software comes with fraud detection tools, address verification, among other features.

Virtual Terminal

A virtual terminal is exactly that, a virtual representation of the card terminal.

Instead of getting a credit card reader, you can just use a computer to process payments. These are great for businesses that don’t need physical credit card readers. You’ll find MSPs offering EMV readers and USB magstripes for brick-and-mortar shops that want a virtual reader instead of a physical one.

Merchant Cash Loans

Merchant services also offer loan products or cash advances to businesses. If you need to buy tools and inventory, you can benefit from these services. This makes it important for you to inquire if the merchant service provider offers such services.

There You Have It!

Now you know what a merchant service provider is and how you can benefit from one.

This is an essential service that all businesses must have now that most people are making electronic payments. Regardless of whether you own a brick-and-mortar store or an online business, you will undoubtedly benefit from these services.

Do your due diligence to ensure you hire the right service that will scale with your business. For more informative posts, kindly check out more of our website.

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