Merchant Services Come in All Shapes & Sizes: How to Choose?

The many technological innovations that merchant services providers have unveiled in recent years have made it easier than ever for retailers to accept a range of credit cards, debit cards, digital wallets, and other payment methods. Yet J.D. Power’s 2021 Merchant Services Satisfaction Study found that small retailers’ satisfaction with their merchant services has declined in the past year. 

In 2020, 51% of U.S. small businesses recorded declines in revenue. As a result, retailers are concerned about the level of customer service their merchant services providers offer, the cost of their services, and challenges related to underwriting and onboarding. 

It is clear that it takes more than technology to meet the payment processing needs of retailers. Merchant services must also make it easy for retailers to interact with their contact centers and simplify setting up and protecting their payment services. Here are some of the most common questions retailers need answers to when evaluating merchant services.

What Is a Merchant Services Provider?

Merchant services create a merchant account for a retailer that is used to hold the payments the business receives from customers once their credit card, debit card, and other charges are approved and paid. The money is then transferred to the business’s own account. 

Some small retailers use payment processing services (PSPs) that don’t require establishing a separate merchant account. However, PSPs don’t issue separate merchant IDs, so the accounts may be more susceptible to theft or fraud. 

By contrast, merchant services provide each business with a unique merchant ID that identifies the store to banks and credit card associations. They also offer more robust security measures, such as Payment Card Industry (PCI) security scans and support for ACH (e-check) payments.

How Do Merchant Services Compare to Services Offered by a Bank?

Many retailers have a good relationship with their bank, but banks don’t offer the range of payment processing services available from most merchant services providers.

The clear and complete financial information available from merchant services providers combine with the data from your business’s POS system to provide the data you need to make informed business decisions.By supporting a range of payment options, merchant services improve the shopping experience for your customers. However, if your store relies on many purchases in amounts under $10, be sure your merchant services provider doesn’t add another per-transaction fee for such sales.Retailers can save expenses on hardware and software by relying on their existing POS systems and other devices they already own rather than having to purchase any from their merchant services provider.

What Type of Pricing Plans Do Merchant Services Offer?

The merchant services provider’s pricing policy should be clear and easy to find. Many small retailers benefit from services that offer interchange-plus pricing, which is a merchant account pricing model that ties a fixed markup directly to the interchange fees published by Visa, Mastercard, and Discover. These plans are also called cost-plus pricing and pass-through pricing; they offer benefits over plans that apply a flat rate per transaction.

Interchange-plus pricing statements let retailers know actual interchange charges and processing fees that help identify potential overcharges by the issuing bank, credit card association, or merchant services provider. Other pricing models for merchant services are payment processing by membership, flat-rate pricing, and tiered payment processing:

Membership pricing models replace per-transaction fees with a flat rate charged for payment processing. This model makes it simpler to calculate fees, but it provides less information about the business’s transactions and may not be the most cost-effective approach to transaction processing.Flat-rate pricing typically provides only a percentage rate per transaction and the per-transaction fee rather than the complete fee picture available with interchange-plus pricing plans. As with membership pricing, flat-rate plans are simpler to manage but they can end up costing retailers higher fees.Tiered payment divides transactions into tiers based on qualifications and other criteria. The merchant services agreement specifies how much retailers are charged for transactions in each tier. This complicates determining how much retailers are being charged for various tiers. 

Many payment-processing plans require three-year terms, sometimes with automatic renewals, and they may apply high early-termination fees. Some attempt to include liquidated damages clauses in their contracts that can be detrimental to retailers. Look for a merchant services provider that doesn’t charge setup fees and that offers month-to-month, pay-as-you-go contracts. Most plans specify payout of funds the day after the sale and some provide same-day payouts or instant payout for an additional fee.

How Do Merchant Services Secure Their Transactions?

The PCI Data Security Standard (PCI-DSS) is intended to help small retailers protect the credit card information of their customers. The PCI Security Standards Council recommends that retailers ask potential merchant services providers whether they store sensitive customer information on their systems, and if they do, how they protect that data. 

Retailers should also confirm that sensitive customer data is encrypted during transmission between the merchant services provider, and what components of the retailer’s POS system and other components are accessible by the provider’s system. Other questions to ask include whether the company provides 24/7 support services during and after the implementation of the service, and how well the company supports and maintains its system.

With the arrival of virtual terminals, the world of merchant services is poised for a transformation that will introduce entirely new payment processing models for retailers of all sizes. Distinctions between eCommerce and real-world transactions continue to blur as consumers and retailers combine the online and in-person shopping experiences. Finding the ideal merchant services provider becomes more important as a way to operate an omnichannel retail business at peak efficiency. Reach out to us today to sign up for a demo and to learn more about how talech can be your valued POS partner.