What are merchant services?

Merchant services, also referred to as card processing services, are facilities that handle electronic card transactions, enabling the transfer of funds from customers to businesses.

Why would I need merchant services?  

Merchant services are now a necessity for any business that sells products or services and needs to take card payments. Some of the benefits include:

• Giving your customers the option to pay by card increases their satisfaction and earns their loyalty.
• Accepting payments anywhere makes it possible for you to build a global customer base.
• Card processing fees are lower than those for processing cheques.
• Your cash flow will be more reliable because your processed funds go into your bank account on a set date.
• The rigid industry standards and regulations will protect your business from fraudulent payments.
• Merchant services make it easier for you to keep track of your transactions by providing you with a record management portal.

What types of merchant services will my business need?

The type of merchant service solution you choose will depend on the type of transactions you make with your customers.

1. Face-to-face transactions. This applies to merchants who have bricks-and-mortar businesses or provide mobile services. This type of transactions requires the use of an electronic point of sale (EPOS) system to take in customers’ card details securely using Chip and PIN technology. The type of EPOS system you use depends on the kind of business you have. Static terminals, for instance, are ideal for businesses that take payments at a till. For restaurants, pubs and bars, customers will prefer to pay at their tables, hence, a portable card machine is the best solution. People who render services on the go, such as taxi drivers, plumbers and builders can benefit from using mobile terminals which make use of apps that can be downloaded on a smart phone.
2. Mail order, fax or over-the-phone (MOTO) transactions. Merchants who would like to take card payments for these transactions can use a virtual terminal, which is a web-based portal where they can put in their customers’ card information securely.
3. Online transactions. There is a myriad of card payment solutions available to merchants who want to sell goods or services on their websites. If you would like to enable card transactions for your website, you can choose to either host the payment page on your site or on the payment service provider’s. The latter costs less but the former is more convenient for customers.

Which merchant services will I need to take online payments?

In order to accept card payments online, you will need a merchant account and a payment gateway. If you’re running an online shop, you will also need a shopping cart or ecommerce platform.

To understand how these facilities make online card transactions possible, let’s take a look at what happens every time a customer makes a card payment to an online shop:

1. The customer is taken to the checkout page and gives their card details to place their order. The customer’s web browser encrypts the details to keep them secure and sends them to the merchant’s web browser.
2. The merchant’s web browser does its own encryption and sends the details to the payment gateway.
3. The payment gateway then sends the details to the payment processor used by the acquiring bank or merchant account provider which then connects to the card association. This is where the verification process starts.
4. The card association sends the authorisation request to the customer’s card issuer which checks the customer’s card details. It checks for fraud and makes sure there are enough funds in the customer’s account. It then sends a coded reply back to the payment processor that either authorises or denies the transaction. If the transaction is denied, the reply will come with a reason, such as ‘Insufficient funds’.
5. The payment processor sends the response to the payment gateway which then sends it to the website’s checkout page to let the merchant and the customer know.

This entire process takes place within 2 to 3 seconds.

Once the merchant has sent the order to the customer, the payment is cleared and the card issuer sends the payment to the merchant account provider. The merchant account then deducts a transaction fee from the payment and deposits the rest into the merchant’s business bank account.

You can set up a merchant account through a bank or an independent sales organisation (ISO). Most high street banks offer merchant accounts, but don’t discount ISOs as most of them offer highly competitive rates. You can get a payment gateway from a payment service provider (PSP). Most merchant account providers also offer payment processing services, but it’s best to look into third-party PSPs and what they have to offer.

Who are the best merchant service providers?

There is a huge number of merchant services providers on the market right now and choosing the right one can be quite tricky.

You can choose to go to your nearest high street bank to apply for a merchant account and use their own PSP. However, as mentioned above, there are plenty of ISOs and third-party PSPs that offer more competitive rates compared to those offered by banks. It will really serve your business well if you take the time to shop around.

Your choice of a merchant account provider and PSP will depend on:

• the size and nature of your business
• your expected sales volume every month
• the type of transactions you intend to make–face-to-face, MOTO or online
• the cost of merchant services

When it comes to using merchant services, size does matter. If your business is new and small, you might find it hard to apply for a merchant account from a bank as most banks have a rigorous application process that includes a thorough credit history check.

Fortunately, there are ISOs that support small businesses and offer accounts and services even to high-risk merchants.

Your sales volume will also affect your choice of provider as different providers have different pricing structures. The general rule is that the higher your sales volume, the lower your processing fees will be. 

Again, there are specific providers who are better suited to small businesses with low sales volumes. You can see some of these in our article on the cheapest merchant service providers. 

There are merchant services providers that offer their services only for online merchants while there are some that cover all types of transactions and offer them as bundles, including the EPOS systems.

Cost will always be a prime consideration when choosing your merchant services provider, so make sure to look into each provider’s pricing structure and always watch out for hidden costs.

To help you get started, use our comparison form above to get competitive quotes from reliable and trusted merchant services providers.