Merchant services 101: A complete guide

PeopleImages/Getty Images

If you’re a business owner, then you’re likely familiar with the concept of merchant services. This term refers to the ways you accept various forms of payment as a business owner, including the equipment needed, so you can get paid.

Whether it’s credit card readers, point-of-sale systems or online transaction processing, merchant services are vital to completing payments. When running a business, knowing how to accept credit card payments can be more complicated than it sounds. You first need to decide how you’ll accept payments and then get the necessary technology to process them.

What are merchant services?

Merchant services is a broad term used to describe the range of financial services tailored to businesses. These services generally include financial tools like processing payments, payment gateways and even loyalty programs.

Finding a solid merchant service provider that can help you take payments with ease is invaluable. These providers can support your business with intuitive software, efficient payment processing hardware and more that takes the hassle out of payment processing.

What do most merchant services include?

Merchant service providers handle a range of financial services that help businesses accept credit cards and other payments for goods and services. Here are the most common ones:

• Credit card processing
  

  The way businesses accept credit card payments is crucial to the day-to-day functioning of a storefront or online store. Merchant services usually offer both online and in-person credit card processing services.

   

• Payment gateways
  

  If your business accepts online payments, you’ll need a secure payment gateway that a merchant service provider can offer. This is a piece of software that works in tandem with your website or e-commerce store to help you take payments.

   

• Online transaction processing
  

  Similar to a payment gateway, online transaction processing requires some work behind the scenes. Online transaction processing is essentially a piece of database software that manages customer orders, processes payments and updates stock levels to complete an order.

   

• Point of sale systems
  

  A point-of-sale (POS) system usually consists of hardware required to take payments and the software to process them along with it. These systems range in price depending on the brand you sign up with to allow you to take payments, process sales and even keep track of inventory.

   

• Check services
  

  If you have customers who are likely to pay by check, you’ll need a system that can process checks as well as cash and digital transactions. Some merchant service providers, like Stripe, offer the tools to process checks electronically.

   

• Loyalty programs
  

  Some businesses offer loyalty programs that automatically reward customers after certain purchases. In order for this to work, a merchant service provider can help you set one up which connects your payment processor to your loyalty program.

   

• Credit card terminals
  

  Another common merchant service that businesses use is a credit card terminal. This is for businesses that accept in-person credit card payments through a physical device you can swipe or tap with your card.

   

Which companies offer merchant services?

Many companies offer merchant services — and they do so with varying price ranges and service plans. Some of the more popular merchant services companies include the following:

• Intuit
  

  Intuit, also known as QuickBooks, offers QuickBooks Merchant Services. Intuit provides a range of different payment services including a point-of-sale system and payment processing. This can be integrated with QuickBooks bookkeeping software to keep a record of all transactions for tax purposes.

   

• Square
  

  Square provides a range of merchant service tools to help you run your business. With Square, you can set up payments and a POS system. Square provides you with the tools to start selling and receiving payments online, as well as payment processing hardware such as credit card terminals.

   

• Bank of America
  

  As well as providing individuals and businesses with banking and credit card services, Bank of America also provides merchant services. With an intuitive point-of-sale system, Bank of America can provide both hardware and software to help you accept payments with ease.

   

• Clover
  

  Clover specializes in a POS system that supports mobile payment hardware, contactless payments and online ordering. It uses a virtual terminal to help you keep on top of all the payments you receive from customers.

   

• Stax
  

  Stax offers credit card processing and supports both in-person keyed/swiped payments and contactless payments. This merchant service provider brings smart technology to your business and supports you with a dedicated customer success manager.

   

• PayPal
  

  PayPal can also provide merchant services to businesses around the world. PayPal offers ways to sell in person, online and by phone. And you can set it all up with a card reader and a smartphone to enable customers to pay by credit card, debit card, contactless or through Apple Pay.

   

What are the fees associated with merchant services?

The next thing businesses need to know is how much it will all cost. The price varies by provider and what services you have chosen.

Merchant service providers even have different methods of pricing such as:

• Monthly fees: Like any subscription service, you pay a flat fee per month to get continued access to the provider’s equipment and support. 
• Processing fees: This is how much it costs for a credit card network or payment processor to process a single transaction. Your service provider will charge a processing fee that’s usually a percentage of the transaction and then use that money to pay the credit card network. 
• Tiered pricing packages: These package rates change depending on what kind of features and equipment you want and how much money you’re planning on processing through the system each year. 
• Flat rates: In addition to a processing fee or monthly fee, you might have to pay a flat rate — usually around 10 cents — per transaction. 

Many providers even charge a combination of these fees. 

If you go with Clover, for example, you’ll notice they offer a range of different pieces of hardware. For register and counter services, which are designed for taking payments with the use of a cash register and counter card reader, you can either pay a monthly rate of $135 or $145 for 36 months or a combination of a $1,799 upfront fee and a monthly rate of $49.95 or $59.95. The different pricing structures depend on what service plan you choose. You will also pay a fee per transaction. 

Stax offers different prices for swiped and keyed payments. All-in-one software packages start at $99 per month for processing up to $150,000 a year, with higher costs for larger processing totals. These plans also typically include a fee per transaction. 

On the other hand, Bank of America charges processing fees of 2.65 percent plus 10 cents on payments taken by card at a physical station. For online purchases, it charges 2.99 percent plus 30 cents per transaction, and for keyed transactions, it charges 3.5 percent plus 15 cents per transaction.

How to choose the right merchant services provider

Choosing the right merchant services provider for your business is an important decision to make. You should consider the following aspects of each provider you research:

• Cost
  

  Weigh up the upfront costs plus the ongoing monthly services. You may want a flat-rate payment so you can budget for it, or prefer to pay fluctuating payment processing fees. Don’t forget to factor in the per-transaction fees that most companies build into their prices, even for those on their monthly plans.

   

• Consumer services
  

  Customer support is key, but having a support system on hand, along with your merchant services, is crucial. Take a look at online reviews for each provider and make sure you check what ongoing support you’ll receive after you purchase the hardware or software. The last thing you want is to lose a few day’s worth of business because your merchant services company didn’t get back to you fast enough.

   

• Payment processing time
  

  Knowing when you’ll receive your payments is important for a number of reasons. Some payment processors may not be able to process payments as quickly as you need, so this is something you should look into before choosing a provider, as well as online reviews to see what existing customers say about average payment processing times.

   

• Integration
  

  Ideally, your merchant services will seamlessly integrate with other pieces of business software or hardware, including those for bookkeeping or processing transactions. Choosing a familiar name like Intuit comes with the benefit of knowing it will integrate well with Intuit’s bookkeeping software.

   

The bottom line

Choosing a merchant service provider is not a decision a business should take lightly. There are many factors to research and weigh against your business model and needs before you decide to sign up.

Watch out for ongoing or hidden costs, and make sure you understand how quickly payments are processed. You should also know what level of ongoing support you can expect to receive should things go awry. 

And to pay for these services? Consider using a business credit card that will let you earn rewards or cash back for those recurring payments and upfront fees. 

The Bank of America content in this post was last updated on October 3, 2024.