What are Merchant Services in Banking and How Do They Work?

In this time and era, keeping up with new technology developments is imperative, particularly when operating your business. Payment methods have developed throughout the years, from checks and cash to debit/credit cards. One development that your business must accommodate is merchant services.

Basically, merchant services refer to a system that allows businesses to accept clients’ payments through modern methods. Merchants may lease or purchase a processing terminal, which hooks up to the internet connection or telephone line. They also input or swipe debit/credit card information of customers into this terminal.

Service Provider

Merchant service providers offer credit card processing services and merchant accounts. When considering service providers, it is important to take the fees they charge into account.

Common fees, which are charged by service providers, are monthly service, equipment, and setup, just to name a few. Additional fees might include:

  • Minimum processing
  • Cancellation
  • Account setup
  • Statement
  • PCI compliance

Merchant Service Products

The essential part of what makes merchant services include the tools available for processing payments. Products, which a merchant service provider offers to enterprises so as to process and accept payments in a manner, which works for them as well as their clients. These products can include payment gateways and contactless payments.

Payment gateways refer to software that can work with your eCommerce store or website and allow you to process payments safely. They may serve as an alternative to a credit card terminal. On the other hand, contactless payments may include Apple Pay, Google Pay, Android Pay, and Fitbit Pay, among other devices, which use NFC (near field communication) or RFID (radio-frequency identification). Other service products might include:

  • Virtual terminals
  • Point of sale (POS) systems
  • Mobile payment 

Choosing Merchant Services

Typically, merchant services may be overwhelming and confusing because many processes, stakeholders, and firms are involved. When exploring different options, it’s important to consider how you will access payments. This means you have to determine if your business will accept payments in-person or online.

Pricing is another important factor in choosing merchant services. This may be in the form of tiered and flat-rate. Tiered pricing happens when merchant service providers bundle their products into tiers, while flat-rate is a small percentage of transaction value, including some fees in every transaction. Apart from pricing and determining the method of receiving payment, you may also consider other factors, like:

  • Integration
  • Processing times
  • Customer service

How Merchant Services Work

For you to know the way merchant services work, it would be important to understand how credit card processing operates at a higher level. Normally, customers pay for their products by swiping their cards at your terminal. In turn, your terminal will send details to an acquiring bank, at times referred to as merchant account, acquirer, or payment process, to request authorization of the transaction.

With this, your processor will forward the transaction to a reliable card association, like MasterCard or Visa, to pass it into a credit issuer or issuing bank. Your issuing bank will either decline or accept the transaction, depending on the client’s account status. The denial or approval message will flow in reverse back to your terminal.

In Conclusion!

At times, you might find yourself on the radar of ISO (independent sales organization). Usually, an ISO will approach you, but sometimes you might need to directly reach out to the organization.

Finding a reliable merchant service provider is invaluable. This way, you will get efficient payment processing hardware and intuitive software to relieve payment processing stress off your shoulders.

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