An Essential Guide to Merchant Account Providers for Small Businesses

By Payment Depot
In Credit Card Processing

Every business needs a way to, well, do business. One of the first things you need to set up is a way to accept payments from customers. And there’s a lot more to that decision than you might think.

There are lots of moving parts and pieces when it comes to payment processing, and there are more entities involved than you might think. One crucial piece? Merchant account providers.

What Is a Merchant Account Provider?

A merchant account provider is a company that provides businesses with a bank account that enables them to accept credit cards and debit card payments. When a credit card transaction happens, the customer’s card deposits money into the merchant account. The money is then transferred to the merchant’s business account. The merchant account is the middle ground between the customer and the business, and the merchant services provider is the company that gives businesses these products and services.

Who Needs a Merchant Account Provider?

Any business that wants to be able to accept credit card payments and/or debit card payments will need to use a merchant services provider to help them set up their accounts to accept payments. And while there may be some cash-only businesses out there, it’s a dying breed. In 2021, the number of cashless transactions worldwide surpassed a whopping 1 trillion. This number is expected to reach over 2 trillion by 2027.

Consumers use cash for just under a fifth of their purchases, with debit and credit card payments accounting for more than half of purchases in 2022. In fact, credit cards were the most preferred mode of payment for consumers in 2022. With the rise in the desire for contactless payments, this is expected to continue to increase.

If you don’t provide your customers’ preferred payment processing options, they may look elsewhere.

While merchants who accept in-person payments may have the option of going cash-only if you plan to sell online, you’re going to need to accommodate different payment types—and that includes debit card and credit card processing. Essentially, any business that wants to sell online or process online transactions needs an account provider.

Merchant Account Services for Small Business Owners

Merchant account services extend beyond just banking. Merchant account providers offer a number of other complementary products and services:

Cashback

Cashback is when a customer pays with a debit card, charging an amount higher than the transaction value so the merchant can give them cash in return. This is a nice convenience to offer customers, as it eliminates the need to go to the ATM for cash and pay any potential withdrawal fees.

Point of sale (POS)

The point of sale POS is critical for in-person payments. Post-pandemic trends show that customers are returning to in-person shopping and are increasingly using digital payments for in-store payments. 73% of respondents to a survey conducted by McKinsey said that they used digital payments for in-store purchases in 2023. This is a huge jump from 65% reported in 2022. Further, this trend is much more significant among Gen Z shoppers.

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Today’s systems offer inventory control, email marketing, and other business management features. You can use the POS to swipe and/or manually enter card information to accept card payments. With additional features, you can also send invoices, email receipts, and promo codes.

A mobile POS is also helpful for businesses that sell on the go—at markets, fairs, events, etc. You can turn any compatible mobile device into an entire POS terminal.

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Accept payments online

Though in-person payments still prevail, ecommerce growth has been catapulted during the COVID-19 pandemic. Even after the lockdowns were lifted, more than 90% of consumers used at least one form of digital payment in 2023.

Online transactions, by nature, require cards—a customer isn’t going to mail in cash for an online payment. And if you plan to invoice online to minimize in-person interactions, the same applies.

Virtual terminal

A virtual terminal is an online payments program that enables merchants to process payments and transactions without the use of a physical POS or terminal. It essentially turns your compatible device, a smartphone for example, into a POS.

Anti-fraud

Fraud is the top payment-related challenge retailers face. You always think it won’t happen to you, but fraud is a very real risk—and a costly one at that. Many merchant services providers also have anti-fraud services, including end-to-end encryption, tokenization, and two-factor authentication.

Payment gateway

A payment gateway is a virtual platform that interfaces between the merchant, the customer’s bank, and the customer’s credit card processing company and enables online payments. If you have no plans to process payments online, you won’t need a payment gateway. But to process online payments, you’ll need access to a payment gateway, and many merchant services account providers have them for an additional fee.

ACH payment processing

ACH, or eCheck, payment processing allows you to take a photo of a paper check to verify available funds before accepting it as a form of payment. You can also deposit the check funds virtually, eliminating the hassle of a trip to the bank or ATM. This is another feature that comes in handy for fraud protection. Not all merchant services account providers offer ACH payment processing, so be sure to check if it’s something you need.

Business funding

Many merchant service account providers also offer funding options, including merchant cash advances and small business loans. Even if you don’t need extra capital right now, consider your goals for the future. If you anticipate needing funds, it’s worth considering as part of your merchant account provider search.

How Much Do Merchant Account Providers Charge?

Merchant account provider fees vary depending on a lot of factors. Businesses typically pay a fee for each transaction, as well as any other applicable monthly fees to their account and service agreement.

When evaluating options for your business, you’ll want to make note of the following charges:

Application fee: To open a merchant account, you first need to apply. In some instances, there are fees associated with the application process that the merchant account provider passes on to the merchant.
Setup/installation fee: If you’re approved and agree to the terms, some providers will also charge a setup or installation fee. These fees may vary depending on who’s doing the implementation—you or the provider.
Equipment costs: You might already own compatible hardware. If you don’t, you’ll either need to purchase it on your own or from the merchant account provider. Many providers also offer the option to rent equipment, which may come with upfront and ongoing costs.
Monthly fee: Monthly fees could be applied to a variety of things. At Payment Depot, the monthly fee gains merchants access to wholesale credit card payment processing rates.
Statement/account/service fee: Look out for charges like statement fees, account, or service fees. Many providers sneak these in as hidden fees.
Transaction charges: A merchant services provider may charge a fee for every transaction processed with credit and debit cards.
Credit card payment processing rates: Credit card processing fees may apply to each credit card transaction. These are charged as interchange, flat rate, tiered, or wholesale.
Minimum payment processing fee: Some merchant services account providers require a minimum amount for each of your credit card transactions. If you don’t meet the minimum, you might have to pay extra.
PCI compliance fees: This is another hidden fee that merchant service account providers look to pass on to the merchant. Avoid providers who charge these fees. At Payment Depot, PCI compliance is included with your monthly membership.
Chargeback fees: Acquiring banks charge merchants a fee each time a chargeback is processed. It covers administrative expenses.
NSF fee: The not-sufficient-funds charge applies when customers use a card linked to an account without enough balance to cover the purchase.
Cancellation fees: This is the amount large or small business owners are charged to cancel or terminate their contract or account with a provider. Read contracts closely to determine cancellation fees that may apply if you end a contract early. An early termination fee can be hidden in fine print.

Top Merchant Services Account Providers to Consider

There’s more to choosing a merchant account provider than simply price. You’ll want to consider things like other accepted payment methods, third-party integrations and platform compatibility, and even customer reviews to find out from others’ experiences. Some of the top options to consider include:

Payment Depot: Payment Depot charges an affordable monthly membership fee and gets merchants access to some of the lowest processing rates.
Square: Square offers a full range of merchant account services, though the company’s recent changes in its pricing make it a little more expensive than before.
Helcim: Helcim charges a monthly fee and is ideally suited to growing and established businesses.
Flagship Merchant Services: One of the first to axe hidden monthly fees, though Flagship isn’t transparent about its pricing.
PayPal: One of the most user-friendly and easiest to set up, though known for freezing merchant funds and siding with the customer.

Stripe: Stripe is a highly customizable platform that requires technical resources, making it ideally suited to enterprises and larger businesses.
Fiserv: Expensive hardware and account fees but affordable processing rates for taking credit card payments.

How to Choose a Merchant Account Provider

With, what seems like, endless options and deals it can be a disheartening task, BUT choosing a merchant account is such an important part of your business! It’s so easy to choose something that doesn’t suit your needs or ends up costing an arm and a leg.

Follow these steps to choose the merchant account provider that is best suited to your company.

Assess your business needs

Understand your business requirements, including transaction volume, industry type, and preferred payment methods. This information guides you in selecting a merchant account provider capable of handling your workload efficiently, complying with industry-specific regulations, and supporting the payment methods preferred by your customers. Matching your business requirements with the provider’s capabilities ensures smooth payment processing and enhances customer satisfaction.

Do your research

Research. Research. Research. I can’t emphasize enough how important it is to do your research when you’re choosing a merchant account. Explore various merchant account providers to compare their offerings, reputation, and reliability.

So many companies in the industry get away with overcharging because people fail to read the fine print. The original offer they advertise is usually only the tip of the iceberg when it comes to pricing.

Hidden in the fine print are the higher rates, extra processing fees, and stipulations you didn’t even realize you needed to think about. Being uninformed about credit card processing services and your merchant services payment processor is the quickest way to lose your hard-earned money. Be sure to read, thoroughly, all of the documents you’re given!

Consider fees

Evaluate the provider’s fee structure, including setup fees, transaction fees, and monthly service charges. Look for transparent pricing to avoid surprises and hidden costs that can impact your bottom line. Ensure you understand the terms of the fees and how they apply to your business operations.

Comparing fee structures across different providers allows you to choose the one that offers the most competitive pricing and aligns with your budget while providing the necessary services and support for your business.

Review contract terms

Reviewing contract terms is crucial. Scrutinize details like contract length, termination fees, and any restrictions or limitations. Understand the commitment you’re making and the consequences of early termination. Look for flexible terms that accommodate your business needs and growth plans.

Beware of hidden clauses or ambiguous language that could lead to unexpected expenses or limitations on your operations. Clarify any uncertainties with the provider before signing to ensure you’re comfortable with the terms and confident in your decision.

Evaluate security measures

When evaluating security measures, prioritize providers with comprehensive safeguards for protecting sensitive financial data. Look for features such as encryption, tokenization, and PCI compliance to mitigate the risk of fraud or data breaches. Assess the provider’s track record and reputation for security, including any certifications or audits they undergo.

Additionally, inquire about fraud prevention tools and protocols they offer to further enhance security. Choosing a provider with robust security measures helps safeguard your business and instills confidence in your customers’ data protection.

Check compatibility

Ensure the provider’s services align with your business operations by verifying compatibility with existing systems and support for preferred payment methods. Seamless integration streamlines processes and enhances efficiency. Also, supporting diverse payment options ensures convenience for your customers, promoting satisfaction and loyalty.

Assess customer support

Assessing customer support involves testing responsiveness and expertise. Reach out to the provider with inquiries or issues to gauge their ability to assist you effectively. Look for prompt, knowledgeable support representatives who can address your concerns promptly, ensuring smooth operations and timely resolution of any issues that may arise.

Read reviews and get recommendations

Gather feedback from fellow businesses and online reviews to assess the provider’s reputation and reliability. Insights from other users can offer valuable perspectives on the provider’s performance, customer satisfaction levels, and overall trustworthiness, aiding in your decision-making process.

Consider additional services

Consider additional services provided by the merchant account provider, like fraud protection, chargeback management, and analytics tools. Assess their relevance and value for your business needs. These supplementary services can enhance security, streamline operations, and provide valuable insights for optimizing performance and mitigating risks.

Make an informed decision: After thorough research and consideration, choose a merchant account provider that best meets your business needs, offers competitive pricing, and provides reliable service and support.

Consider Which One Would Fit Best with Your Business

Not all credit card processing companies are created equal, so it’s extremely important to ask yourself this question when choosing a merchant account. Each company offers different deals, but a lot of companies only offer the low rates on certain types of transactions. This is where you need to map out what type of transactions you do and if the majority of yours would still qualify for that good deal, otherwise, you’ll be paying double or triple the original advertised rate.

Further, business owners should ask themselves whether this company is one they enjoy doing business with. Has your experience been positive so far? Would you want to go to them for customer support? If you can’t answer yes to these questions, there’s no deal that makes up for poor service.

Unlike most merchant services providers, Payment Depot has a significant amount of positive feedback and very few complaints from merchants. In fact, Merchant Maverick reports that many merchants have even taken the time to post positive comments about Payment Depot merchant services.

Moving Forward With Payment Depot

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Choosing the best merchant account provider can keep your large or small businesses safe and profits in your pocket. Payment Depot offers interchange plus pricing tailored to your business needs and no set-up or cancellation fees. With Payment Depot and our transparent pricing model, you’ll gain a clear line of sight into your payment processing costs, helping you save money and make well-informed business decisions.

Need to do some research about merchant services and credit card processing, just in general?

Here are a few links to get you started with selecting a credit card processing company and payment processors:

Get in touch with the Payment Depot team and we’ll run a free analysis of your merchant account options to help you find the best payment processing fit for your business.

Request a Quote

FAQs about Merchant Account Providers

Q: What is a merchant account provider?

A merchant account provider is a financial service provider that enables businesses to accept electronic payments, such as credit and debit cards. They facilitate the processing of payments made by customers, transferring funds from the customer’s bank to the merchant’s account. Merchant account providers typically charge fees for their services, which vary depending on factors like transaction volume and type of business.

Q: How do I choose a merchant account provider?

When selecting a merchant account provider, consider factors such as transaction fees, contract terms, customer support quality, and compatibility with your business needs. Assess the provider’s reputation, reliability, and security measures to ensure safe payment processing.

Evaluate additional services offered, such as fraud protection and integration with existing systems. Ultimately, choose a provider that offers transparent pricing, responsive support, and tailored solutions to meet your business requirements.

Q: What are high-risk merchant accounts?

High-risk merchant accounts are specialized payment processing solutions designed for businesses operating in industries prone to elevated levels of financial risk, such as adult entertainment, gambling, or pharmaceuticals.

These accounts typically require higher fees and stricter underwriting criteria due to the increased likelihood of chargebacks, fraud, or regulatory scrutiny. Despite the challenges, high-risk merchant accounts provide essential services for businesses in these sectors.

Q: How much does a merchant account cost?

The cost of a merchant account varies depending on factors like transaction volume, business type, and the provider’s fee structure. Typical expenses include setup fees, transaction fees (usually a percentage of each sale), and monthly service fees. Additionally, there may be incidental charges for services like chargeback handling or equipment rental, making the total cost variable and case-specific.

Q: Why should businesses use a merchant account?

Merchant accounts enable businesses to securely accept electronic payments such as credit cards and debit cards. This allows businesses to expand their customer base and facilitate seamless transactions.

By offering diverse payment options such as credit and debit cards, merchant accounts enhance convenience for customers, potentially boosting sales. Additionally, they provide secure processing, protecting sensitive financial information and reducing the risk of fraud. Utilizing a merchant account also streamlines accounting processes, with transactions electronically recorded for easier tracking and reconciliation.