If you’re a small business looking to offer your customers more ways to pay, you’ll need to acquire merchant services. But what are merchant services, and how do you find the right provider for your business? In this article, we’ll discuss what a merchant services provider is, why you need one, and how to choose the right one for your small business.
What is a Merchant Services Provider?
Before we explore the details of acquiring a merchant services provider, let’s define it.
As a small business that provides goods or services, you are a merchant. The hardware and software you use to accept payments are merchant services. The merchant services provider is the company that initiates and maintains your relationship with your processor, hardware provider, and gateway provider (if needed). While the merchant services provider’s role is quite complex, the company you choose does a lot of the tricky parts so you don’t have to. Let’s dive in.
Why Do You Need a Merchant Services Provider?
The role of the merchant services provider goes far beyond the equipment. When you accept credit and debit cards as payment, the transaction goes through a series of certifications and approvals before you receive the “approved” or “declined” message on your machine.
During a transaction, your merchant services provider sends information back and forth between different parts of the process. First, they send the information to verify the cardholder’s bank account has enough funds to make the purchase. Then, they confirm the card number matches the bank account on file, run a security scan, and verify any other information entered. After the transaction is complete, they are also responsible for routing the funds from your customer’s bank account to yours.
This process comes with many risks—like fraud—and responsibilities. These include verifying you as a legitimate business that can receive funds from the cardholder. A merchant services provider helps you manage any associated risks, responsibilities, and equipment. Not to mention, they’re the ones you contact for any issues that may arise with your merchant account.
This way, you can concentrate on your customers and daily business operations. After all, sometimes outsourcing increases productivity.
How Do You Find and Acquire the Right Merchant Services?
Acquiring merchant services for some business models is easier than others. There are many factors on both ends that need to be considered.
First, you’ll need to evaluate your business risk, needs, and credit profile. These will be essential in finding the right service provider for your business.
Risk and Credit Profile Considerations
Certain business types are at a higher risk for fraud or liability than others. Online businesses like eCommerce, for example, are riskier than in person businesses because you’re unable to verify the cardholder in person. Cannabis and firearms businesses, as another example, are deemed riskier than a restaurant or hotel because those industry regulations vary by state and are not federally regulated like others.
Your business also has a credit score (or if you’re just starting out, you will need to rely on your credit score) which plays into your ability to find a merchant services provider.
High risk merchant services are typically more difficult to find because providers are the second line of defence should something go wrong. This means they are next on the hook for fraud costs if your business were to go under. Because of this, your business model, creditworthiness, and level of risk can impact your options for merchant services.
Needs to Consider
Another important factor to consider is the business structure you’re looking to support. If you operate in a brick-and-mortar environment, your needs may be easily met with a simple countertop payment terminal. A slightly more complicated setup may require a point-of-sale (POS) system that can track things like time cards, inventory, front and back of house orders, etc. If you’re planning to operate primarily online, on the other hand, an eCommerce website or shopping cart may be all you need.
Where you may want to take more time to reflect is in considering your growth and ideal future a few years from now. Do you imagine your eCommerce business attending trade shows and needing a way to accept payments on the go? Or do you see your brick-and-mortar store opening up online in the next few years? You’ll want to find a payment processor that can scale with your business and its needs as you grow.
Evaluate the Market
The credit card processing industry has a lot of options to offer, which is an advantage to you as a merchant. That said, it’s a tricky industry to understand which often leaves merchants vulnerable to bad actors.
Take the time to understand the fees, pricing structures, and available options so you can see when you’re comparing apples to apples or apples to oranges. You’ll need to take time to learn about the ins and outs, but that time will be well worth it once you’ve found a good and trustworthy long-term provider.
Gather Relevant Documents
When setting up a merchant account, you’ll need to provide documents that show your business has a legitimate history. You’ll need to submit things like previous processing statements (if available), business licenses (where applicable), and your business registration information (EIN, state filings, etc.) before setting up your merchant account.
Submit an Application
Once you’ve chosen a merchant services provider and gathered your documents, you can apply for a merchant services account. Once approved, your application becomes your contract, so review this document carefully.
After you’re approved, any equipment you need will be programmed with your business and banking information and shipped to you (or, in an eCommerce or virtual terminal environment, will be set up and credentials will be provided to you). Next, you’ll be able to “plug and play,” which, in industry terminology, means plug it in and start using it right away.
When choosing the right merchant services for your organization, you’ll find a lot of options. The most important things to consider are the cost to process cards, the security of your solution (is it PCI compliant?), and whether the processing solutions available match your business needs. Taking the time to understand the payments industry is worthwhile to ensure the merchant services provider you find is a trustworthy long-term partner for you.