In the past, small businesses or start-ups could start by only accepting cash. However, cash is becoming a rare commodity these days, and it is estimated that by 2025, cash will make up just 2% of total transactions as we are moving towards a cashless society. So, any company looking to do business on or offline today needs to have the facilities to be able to take payment using either debit or credit cards, and that means signing up for a merchant services account.
But what exactly are merchant services and how do they work? In this guide, we are going to cover merchant services in detail, looking at what services are included, how they work, how much they cost and most importantly, how you can apply for one. So if you are starting a new business or looking to take card payments for the first time, this guide will provide you with all the information you need to get started.
What Are Merchant Services?
Merchant services is a term used by merchant service providers (MSPs) to describe the processes required to take debit and credit card transactions, along with facilitating other electronic payment methods, such as mobile. These financial services include everything from the supply of credit card terminals to fraud prevention services and online payment gateways. Merchant service providers bundle all these services together, allowing you to take payments online efficiently.
Without this service, companies would have to integrate credit card processing themselves. This would be time-consuming and require expertise most small companies don’t have, putting card payments out of reach for all but the largest companies. As a society more and more of us are now predominantly using cards and mobiles to pay for things everyday, so thanks to merchant service providers we are able to pay for everyday essentials from our groceries to online shopping!
What Services Are Typically Included?
Credit Card Processing
Credit card processing is the term used to describe the authentication and secure transfer of funds from the customer’s account (the issuing bank) to your account (the acquiring bank). During this process, the debit/credit card is verified, the available funds and credit limits are checked and the transfer is completed. However, you won’t typically see the money in your merchant account straight away, as the process can take up to 3 days to complete.
Online Transaction Processing
Online transaction processing is a type of data processing that manages the online transaction process. Data received by the payment gateway is presented to the customer issuing bank for verification. Once verified, funds are transferred to the acquiring bank.
Payment Gateway
Payment gateways allow your business to take credit or debit card payments online. They consist of secure web pages that keep transaction data secure from hackers, and most payment gateways can be integrated with third-party apps, such as shopping carts. There are several types of payment gateway, including third-party hosted solutions, where the secure web pages are hosted by the payment gateway provider to integrate solutions that can be hosted on your website.
Point Of Sale Systems (PoS)
The Point of Sale system (PoS) is the hardware and software you need to take debit and credit card payments. Most solutions also allow you to take traditional cash payments and can be integrated with stock management and accounting software.
Credit Card Terminals
The credit card terminal is the piece of equipment used to accept debit and credit card payments. Several types are available, from traditional static keycard systems to portable Wi-Fi terminals which are commonly used in restaurants.
Merchant Accounts
Merchant accounts are special bank accounts used to store debit and credit card funds. Once payment has been authorized, funds are deposited in your merchant account, but you won’t be able to access them until a predefined settlement period has elapsed. The settlement period exists to help protect consumers from fraud. The amount of time you have to wait is determined by the risk profile of your business. The average for a well-established business is three days, but you may be asked to wait up to 8 weeks.
How Do Merchant Services Work?
Merchant services involve a lot of complicated processes which can make them difficult to understand. So, let’s look at how all these services work together to allow quick and easy debit and credit card processing for your business.
- Step 1. The customer pays for goods or services using a debit/credit card. They place the card in the credit card terminal and input their PIN for verification.
- Step 2. The credit card terminal sends the card and transaction data to the payment gateway. From here, data is passed to the issuing bank to request payment.
- Step 3. Once the issuing bank receives the request, the customer’s account is checked to ensure enough funds are available.
- Step 4. Assuming funds are available, the issuing bank sends confirmation back to the card reader, via the payment processor to authorize the transaction.
- Step 5. Once payment is complete, funds are transferred to the receiving bank’s merchant account where they remain until the predefined settlement period is complete.
How Expensive Are Merchant Services?
The cost of merchant services varies depending on which provider you use and the services required, but most merchant services charge a flat monthly fee, with ongoing transaction charges, and you will also need to factor in the cost of the terminal rental, PCI compliance charges and monthly invoices and statements. These can amount to several hundred pounds a month, even for a small business account, so it pays to shop around to find the best deal.
Merchant providers like Independent Merchant Services offer competitively priced merchant accounts tailored to the needs of small businesses. With the ability to save as much as 90% compared to a traditional merchant account from a high street bank, look no further than these experts to help you find the right deals for your business.