To understand what a merchant is, you need to first understand what a Merchant Services Provider is. A Merchant Services Provider is also commonly referred to as a payment processor, and that is precisely what they do. They offer various services to businesses that accept credit card payments, debit card payments, or other forms of electronic payment. They are a vital part of allowing a company to operate smoothly and grow.
The primary job of a Merchant Services Provider is to handle a company’s transactions. They take and process the customers’ payment information and then communicate the information with both the company’s bank and the company’s bank to complete the transaction. However, Merchant Services Providers also do things such as keeping customer’s data safe, and they provide technology that does lots of different things such as tracking payments and helping businesses understand their data.
There are lots of different Merchant Service Providers out there; in fact, there are thousands of thousands in the United States alone. These Merchant Service Providers range from third-party services like Paypal, Square, and Fattmerchant to Merchant Service Providers operated by big banks like Bank of America and Wells Fargo. All of these different providers have their own tools and services, but they also each come with different levels of fees.
What is a Merchant?
A merchant is an individual or business that the payment processor provides services for. In other words, they are the customers of Merchant Service Providers. These businesses or individuals might take payments online, on the phone, in person, or some combination of the three. They use the processor to keep their business running smoothly and producing a profit.
A merchant can be any person or business that sells goods and services, but it can be further broken down into several subgroups: retail, wholesale, eCommerce, and affiliate merchants. The first two are mostly self-explainable. Wholesale merchants typically sell from business to business. Retail is the middle man between distributors and customers. ECommerce merchants are retailers that sell entirely online, and they are constantly growing in popularity right now. Finally, affiliate merchants are the ones that make their money by referring customers to other businesses.
What is a Merchant Account?
Along with getting a processor, you might get a merchant account. If your provider is through a big bank, the account will likely be made directly with that same bank. On the other hand, if you are using a third-party source like PayPal, you will need to set up a merchant account with a bank as well. Often people assume that opening a merchant account is the same as opening a regular bank account, but that is a misconception. A merchant services account allows you to take credit, debit, and other electronic payments from customers.
Just like there are fees that come with most Merchant Service Providers, there are fees that come with these accounts. The fees typically include you covering transaction fees set by payment processors, the credit card association, and the issuing bank. Sometimes business owners look to save some money by finding an option with minimal cost per transaction, but lower processing fees may mean it is less reliable. Less reliable services may lead to a lot of frustration down the road.
Is a Merchant Account Necessary?
One way people may try to avoid extra fees is by not opening a merchant account. Most processors require you to have an account to establish a relationship between your business and them; however, there are some processing providers like Square that do not require merchant services accounts because individuals use the services too. However, without a merchant account, the processor may be taking on increased risk, and if they suddenly decide not to take on that risk anymore, they could cancel your account at any time. If they do so, you would no longer be able to accept payment from customers. Getting a merchant account provides your business with significantly more security.
Merchant Services Tools
Besides processing payments, the tools a Merchant Service Provider offers are really important. The different tools will decide how many different payment forms you can accept, what information you have access to, and secure your data.
There are four main forms of payment that your Merchant Service Provider may offer. The first is mobile payments, which are any payments made through a mobile device like a cell phone or tablet. Mobile payments can be made from a customer to a business or between two individuals. The second option is credit card terminals. These are what you commonly see at stores where customers can swipe, tap, or insert their card to make a payment. The third option is eCommerce. If your Merchant Service Provider offers eCommerce tools, they will probably include helping you set up your online store and allow you to accept credit/debit cards through it. The final option is virtual terminals. Virtual terminals are a type of software that will accept payment from a card, typically a credit card, even if the card is not physically present.
- Payment Security
Merchant Service Providers can also help you ensure that your business is PCI compliant, meaning any of your customer’s data (names, card numbers, etc.) is secure and cannot be stolen. Your customer’s information being stolen is one of the biggest risks in accepting payments because you could be liable for a lot if it happens. While it is good for you to be proactive about protecting data by using strong passwords and having updated antivirus software, a Merchant Service provider provides extra protection by doing things like tokenizing payment information and providing you with fraud protection.
The final major thing that they do is provide you with data that can help you learn more about your business and customers to optimize operations. They will let you know things like who your major customers are (both money and time-wise) when you are receiving the most payments (day, month, year, etc.), and even provide you with information about where/how you could be increasing your revenue.
In conclusion, if you are operating a business where you accept payment via credit card, debit card, or electronic payment, it is important that you choose a Merchant Service Provider. They will help you grow your business while keeping the day-to-day operations running smoothly.