Your Full Guide to Merchant Service Providers

Payment Processing

Payment processing is the backbone of any merchant service provider. It involves authorizing transactions, securely transferring funds, and ensuring payments are deposited into your merchant account. Payment processors handle the heavy lifting behind the scenes, including:

• Verifying customer payment details.
• Communicating with issuing banks.
• Processing refunds and chargebacks.

Merchant Accounts

A merchant account is a type of bank account that enables businesses to process and accept payments. MSPs provide and manage these accounts, allowing businesses to handle payments while protecting against fraud and chargebacks.

When customers pay with a card, their funds are temporarily held in the merchant account before being transferred to your business’s bank account. Overall, it acts as a safeguard, ensuring that funds are available and legitimate.

Point-of-Sale Supply

MSPs often supply point-of-sale (POS) systems for businesses with physical locations. These systems include both hardware and software for processing payments and managing sales. Some POS software systems may also include tools for tracking your customers, sales, and inventory, allowing you to optimize your operations. Common POS hardware includes:

• Card readers
• Cash registers
• Receipt printers
• Mobile payment devices

Fraud Protection & Security

Fraud is a growing concern for businesses, especially in the digital space^[2]. MSPs provide fraud protection services to safeguard transactions and customer data. 

They also ensure that all systems use encryption and tokenization to protect sensitive payment data during and after transactions. They may also conduct real-time monitoring, flagging suspicious transactions to prevent fraud.

Fraud protection not only helps prevent chargebacks and financial losses but also builds trust with your customers, ensuring they feel safe using their preferred payment methods.

Customer Support

Reliable customer support is a critical service offered by MSPs. Whether you’re troubleshooting technical issues with a POS system or need help with chargebacks, having 24/7 access to support can save time and minimize disruptions. Having excellent customer support ensures you can focus on running your business, knowing that your payment systems are in capable hands.

A Variety of Fees

A large chunk of what merchant services cost will come in several different fees. Some may only be flat, one-time fees, while others will be charged for every transaction that’s processed. Here are a few of the many fees you can expect to get from your merchant service providers:

• Monthly fees: Similar to subscription fees for any other service, businesses must pay a monthly fee to continue accessing their merchant service providers’ payment processing services, software systems, and support services.
• Transaction fees: Also called processing fees, these fees are charged with every transaction your business makes with a customer. They are usually a percentage of the transaction and a small flat rate.
• Credit card processing fees: These fall under transaction fees but slightly differ since they are often higher in price. This is due to additional fees charged by credit card networks like Discover or Mastercard.
• Chargeback fees: When customers dispute a charge, chargeback fees cover the cost of investigating and resolving the issue. These fees can range from $15 or more per dispute and may be higher for businesses in high-risk industries^[3].
• Setup Fee: Some merchant services charge one-time setup fees for account activation, hardware installation, or payment gateway configuration. However, many merchant service providers can waive these fees depending on your transaction volume to stay competitive.

Different Pricing Structures

Different MSPs use different pricing models to charge for their services, and the right structure depends on your business’s transaction volume and needs. Here are three of the most used options^[3]:

Interchange-Plus Pricing

This model separates the card network’s interchange fees from the provider’s markup. For example, you might pay the interchange fee (1.5%) plus a markup (0.5%). This structure is very transparent and more cost-effective for businesses with high transaction volumes or varying ticket sizes.

Tiered Pricing

In tiered pricing, transactions are categorized into tiers — qualified, mid-qualified, and non-qualified — based on factors like card type or transaction method. Each tier has a different rate, which can be less transparent and may lead to higher costs for some businesses.

Flat-Rate Pricing

Flat-rate pricing offers simplicity, charging a single percentage rate for all transactions (e.g., 2.75%). This structure is popular among small businesses with predictable sales patterns but may not be the most affordable option for high-volume operations.

Scalable Services

As your business grows, so should your MSP’s offerings. Look for providers that offer scalable services and tools that help you manage payments across multiple branches or storefronts.

They should also have options for recurring billing, subscription management, or international payments. A merchant service’s scalability ensures your payment solutions can evolve alongside your business without requiring you to switch providers.

Payment Gateways & POS Systems

Whether you operate online, in-store, or both, your MSP should provide robust tools for processing payments. Payment gateways enable secure online transactions and integrate with eCommerce platforms like Shopify or WooCommerce.

On the other hand, point-of-sale (POS) systems are for in-store sales. They involve specialized hardware like card readers and registers that seamlessly connect with the processor’s chosen software platform. These often feature tools that allow you to track inventory, sales, and customer data^[4].

Compatible Software Integrations

Your MSP should work seamlessly with the tools your business already uses, including:

• Accounting Software: Integration with QuickBooks, Xero, or similar payment solutions for accounting companies and departments.
• CRM Systems: Compatibility with customer relationship management tools for better customer tracking.
• eCommerce Platforms: Easy connections to Shopify, Magento, or WooCommerce^[4].

Seamless integration minimizes disruptions and streamlines your operations, saving time and money.

Analytics & Reporting

Some MSPs offer detailed analytics and reporting. These provide data-driven insights that are critical for making informed business decisions. The right analytics tools will allow you to track revenue trends and identify your best-performing products or services.

Their reports can also help you understand purchase patterns, payment preferences, and customer demographics. These reports give you a clearer picture of your business and help you adapt to changing customer needs^[3].

1) Review Your Business & Its Needs

Before diving into your search, closely examine your business and its payment processing requirements. Consider the following questions:

• What is your sales volume?
• What payment methods do you accept?
• Where do your transactions happen?

Going over these questions can help you discover your merchant services needs and allow you to prioritize features your ideal provider should offer.

2) Perform Research on Potential Providers

Once you know what you’re looking for, start researching potential MSPs. Read online reviews, testimonials, and case studies to learn about other businesses’ experiences. Find out what specific industries a particular MPS works best for. Find out how well a provider has met PCI compliance standards and whether they offer robust data protection.

3) Compare & Contrast Merchant Services

Not all MSPs are created equal, so it’s essential to compare their offerings side by side. Some key factors you you should focus on include:

• Fees and pricing structures: Review each provider’s monthly fees, transaction fees, and setup costs. Calculate their costs and the rest of your business expenses to ensure they are feasible.
• Features and tools: Look for features like payment gateways, fraud detection, analytics, and broad software integrations that will work with your existing systems.
• Customer support: Reliable 24/7 support can make a huge difference, especially when troubleshooting payment issues.

4) Negotiate & Get Quotes

Once you’ve identified a few top contenders, request quotes and negotiate terms. Keep these tips in mind. If you’re a high-volume business, you may be able to negotiate for lower transaction fees or reduced monthly charges.

Additionally, you should ask about and clarify hidden fees. You should be aware of all possible costs for your business, including chargeback fees, early termination penalties, or hardware rental fees.

Don’t be afraid to shop around and compare quotes. Providers are often willing to match or beat competitors’ rates to win your business.