The era of cashless transactions is now firmly upon us. In 2025, digital payments accounted for about 84% of consumer transactions in the U.S. according to recent industry data, leaving cash as a minority method.
This means it’s essential for both brick-and-mortar and ecommerce retailers to accept all types of non-cash payment options—online, in-person, or over the phone. This is where merchant services and merchant service providers (MSPs) come in.
They provide the means for you to accept such cashless payments. Without them, you’ll be stuck with cash payments only. In this article, we’ll discuss the role of merchant service providers, how to pick the right one for your business, and share our top picks for you to choose from.
What are merchant services?
Merchant services refer to the full suite of financial tools and infrastructure that allow businesses to accept and manage electronic payments. This includes payment processing technology, merchant accounts, fraud protection, settlement services, and reporting systems that move funds securely from a customer’s bank to yours. In short, merchant services power the behind-the-scenes systems that make modern, cashless commerce possible.
What is a merchant service provider?
Put simply, a merchant account provider facilitates the payment of funds from your customer’s credit card company to your business bank account. You can accept their credit cards, debit cards, and mobile wallets using point-of-sale systems, mobile readers, virtual terminals, or online payment gateways.
The full scope of payment solutions offered by these credit card processing companies generally includes the following:
- Card payments processing: You will be able to accept payments from customers by dipping, tapping, or swiping their cards into processing hardware like payment terminals, POS systems, and card readers that your merchant services provider offers.
- Mobile payments: Your credit card processor may provide apps for processing mobile payments carried out using mobile devices like phones or tablets.
- Payment gateways: Ecommerce businesses can get access to a payment gateway that integrates with their ecommerce platform to facilitate online payments.
- Business services: In addition to payment processing services, the hardware and software provided by your merchant service provider may also come with features like loyalty programs, invoicing, inventory tracking, CRM, and more.
- Merchant accounts: A merchant services provider should offer a merchant account—i.e., the bank account that allows businesses to accept electronic payments like credit cards, debit cards, and digital wallets. This is what underpins all the services and tools offered by your service provider. The account can be dedicated or aggregated. You’ll retain the exclusive use of a dedicated account, while an aggregate account is shared with other merchants.
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How to choose a merchant services provider for your small business
There are three major factors to consider when choosing a merchant services provider for your business. Let’s take a closer look at these.
1. Pricing structure
Costs can rack up pretty quickly if you opt for the wrong provider. As such, there are three major types of processing fees you need to be aware of before making your decision. These are:
- Transaction fees: These rates are set by your provider as the cost of processing your card payments. The amount charged per transaction will include the interchange rate set by the card issuing company and a percentage fee based on the amount processed (also known as the processor’s markup). The percentage fee/markup is set by your provider and may be negotiable.
- Account fees: These include any administrative costs that may be charged for the use of your merchant account. For example, monthly minimum fees, statement fees, annual fees, etc.
- Incidental fees: These include any one-off fees that you may have to pay. For example, a chargeback fee, PCI compliance fee, batch fee, network fee, AVS fee, etc.
You will also have to pay for the devices/equipment your MSP provides for payment acceptance. The payment model will depend on whether you lease the equipment or buy them outright.
Your processing fee is often the most consequential type of payment you will make to your provider. Ensure you only sign up with a provider whose pricing model is most suitable given your business needs. The types of pricing models are:
Tiered pricing
In this model, your provider will offer three types of rates: qualified, mid-qualified, and non-qualified rates. Qualified rates will apply to card-present transactions, mid-qualified rates will apply to cashback credit cards and keyed-in payments, while non-qualified rates will apply to card-not-present transactions, corporate cards, and high-risk cards.
Your provider will decide when to apply each type of rate to your transactions, and the percentage fee/markup will increase as you go from qualified to non-qualified transactions. This is the core issue with tiered pricing—the lack of transparency. It is impossible to determine what your provider will charge for each transaction, and this makes it difficult to estimate/track your processing fees.
Tiered pricing is not always beneficial for small business owners, and it is only advantageous when you are certain the majority of payments will be card-present transactions with regular debit cards.
Flat-rate pricing
Here, your provider charges a fixed percentage as processing fees for each transaction. This means the percentage will stay the same for every type of transaction. This payment model is offered by aggregate merchant service providers, which usually don’t charge account fees.
It is a cost-effective model for small businesses that process less than $5,000 each month. This is because all they have to pay is the processing fee for each transaction without the additional monthly or annual account fees charged in other pricing models.
However, it is not often suitable for businesses that process larger volumes of transactions. Such businesses will lose the cost savings they may get by negotiating lower rates in other types of pricing models.
Interchange-plus pricing
In this pricing model, the provider will set a negotiable markup that will be added to the interchange rate. The main advantages of this model are transparency and flexibility. You know how much you are being charged per transaction, and you may also be able to negotiate a lower rate.
This makes the model perfect for businesses that process significant volumes of transactions each month. You will be able to track your payment processing costs and negotiate lower rates when you start processing higher volumes.
Interested in this pricing model? Payment Depot offers interchange-plus pricing that gives merchants direct access to wholesale interchange rates with a clear, consistent markup.
Membership pricing
With membership (or subscription-based) pricing, you pay a flat monthly fee to access wholesale processing rates, plus a small per-transaction cost. Unlike tiered or flat-rate models, where the provider’s markup is bundled into every transaction, membership pricing separates the provider’s profit from interchange. This structure gives you full visibility into what you’re actually paying—and can result in significant savings as your sales volume grows.
Because you’re not penalized with percentage markups, this model is especially cost-effective for established businesses processing higher volumes each month. You’ll pay the same low interchange rates that large enterprises enjoy, without unpredictable fees or hidden markups.
One excellent example of a merchant services provider for small business that offers membership pricing is Stax, which offers transparent, flat-fee access to true interchange rates. That way, you keep more of every sale and don’t have to worry about fluctuating fees.
2. Features
These refer to the services and tools that provide the functionality needed to accept card payments. These include:
Hardware
By hardware, we mean POS systems, card readers, and other payment terminals. They should be able to process card information from major card brands including Mastercard, Visa, American Express, and Discover. They must also support EMV chip cards and contactless payments like Apple Pay or Google Pay.
Integrations
The payment processing hardware and software offered by your provider must be able to integrate with the existing software applications (QuickBooks, CRM, etc.) you are using to run your business.
Payment settlement
The speed with which your provider transfers funds after a sale and furnishes your account will have a major impact on your cash flow. You’ll want to work with a service provider with fast ACH payment processing that offers same-day or next-day funding to ensure you always have money available to spend on your business.
Customer support
Things can go wrong, and unforeseen events can occur. You’ll want your provider to offer 24/7 customer service to ensure your inquiries are answered anytime you call.
Security
Your provider must also provide comprehensive protection from card payment fraud. This means the company must ensure PCI compliance. PCI-complaint credit card processors have been affirmed to follow technical and operational standards to secure card transactions.
3. Contracts
Your contract will determine the duration of your relationship with your service provider and any applicable consequences for terminating the agreement prematurely.
You’ll want to avoid locking yourself into a long-term contract. And if you must, be wary of providers that impose early termination fees or cancellation fees. Such fees can make it very expensive for you to get out of an unfavorable contract.
The best types of contracts will give you month-to-month terms and allow you to cancel the agreement at any time without any financial penalty.
Steps for choosing the best merchant services for small business
We’ve covered what to look for in a merchant services provider—now let’s put it into action. Choosing the right merchant services for small business doesn’t have to feel overwhelming.
Follow these practical steps to identify, compare, and select the best merchant services solution for your business.
Step 1: Assess your business needs
Start by identifying how you’ll accept payments and what types of payment processing solutions you need.
Ask yourself:
- Do you primarily sell in-store or online?
- Do you need to accept credit cards, debit cards, or mobile payments like Apple Pay?
- Do you require ACH payments or direct debit for recurring transactions?
- Will you need a POS system or a payment gateway for online payments?
Your answers will guide which merchant services provider and pricing model make the most sense. For example, retail businesses may prioritize in-person payments and contactless payments, while online sellers may focus on secure payments and easy integration with ecommerce platforms.
Step 2: Compare pricing models and fees
Once you understand your needs, take a close look at each provider’s pricing structure.
Common types include flat-rate pricing, tiered pricing, and interchange-plus pricing.
Here’s what to watch for:
- Transaction fees: What percentage is charged per sale?
- Monthly service fee: Does the provider charge a recurring monthly fee or fixed fee?
- Additional fees: Check for hidden fees, setup costs, and long-term contracts.
- Chargeback fees: Understand the cost if a customer disputes a charge.
Tip: Ask for a transparent breakdown of credit card processing and debit card payments so you can compare apples to apples.
Step 3: Verify compatibility with your tools and bank account
Your merchant account should connect seamlessly with your business bank account or business checking account to keep cash flow steady.
Confirm that the payment processor integrates with your existing systems:
- Point-of-sale (POS) software
- Online store or website platform
- Accounting tools
Smooth integration helps automate electronic payments, track card transactions, and ensure funds hit your account quickly—often within one business day.
Step 4: Evaluate payment flexibility and security
Modern consumers expect options. Choose a merchant services solution that supports multiple payment options such as:
- Credit and debit cards
- ACH bank transfers
- Payment links and mobile payments
- Contactless payments and Apple Pay
Equally important: Ensure the provider follows PCI DSS standards for secure payments and uses tokenization or encryption to protect customer data.
Step 5: Review contracts and terms
Before signing your merchant services agreement, review the fine print.
Look for:
- Cancellation policies or early termination fees
- Long-term contracts or month-to-month options
- Competitive pricing guarantees
This is where many small businesses get caught by hidden fees or complicated terms, so take your time and ask questions.
Step 6: Test customer support and reliability
Reliable customer support can make or break your experience. Choose a merchant service provider with:
- 24/7 live chat or phone support
- Dedicated onboarding help for new merchant accounts
- Quick resolution for disputes or technical issues
Ask about average processing times, system uptime, and how they handle outages or downtime in point-of-sale or online payments.
The bottom line
Choosing the right payment processor will save you money and simplify payment processing for your business. The wrong choice, on the other hand, can be very costly to forgo and may cause you to lose customers.
Payment Depot stands out for its well-rounded software and hardware solutions coupled with a very affordable interchange-plus pricing model. Talk to our award-winning customer service team today to learn how we can help you save hundreds of dollars in credit card processing every month.
Quick FAQs about merchant services for small businesses
Q: What are merchant services for small businesses?
Merchant services enable small businesses to accept cashless payments from customers. This includes processing credit cards, debit cards, and mobile wallet payments through tools like point-of-sale systems, mobile readers, virtual terminals, and online payment gateways.
Q: Why do small businesses need merchant services providers (MSPs)?
Small businesses need MSPs to facilitate cashless transactions, which are increasingly becoming the norm. MSPs provide the necessary tools and services to process various payment types, helping businesses increase sales and improve customer satisfaction.
Q: How can I choose the right merchant services provider for my small business?
To choose the right MSP, consider factors like processing fees, customer support, integration capabilities, and contract terms. Look for providers that offer transparent pricing models and features that align with your business needs.
Q: What are the common pricing models offered by merchant account providers?
Common pricing models include tiered pricing, flat-rate pricing, and interchange-plus pricing. Each model has its advantages and drawbacks, and the best choice depends on your business’s transaction volume and payment processing needs.
Q: What fees should I be aware of when selecting a merchant services provider?
Be aware of transaction fees, account fees, and incidental fees such as chargeback fees and PCI compliance fees. Additionally, consider costs related to purchasing or leasing payment processing equipment.
Q: Which is the best payment processor for small businesses?
The best payment processor depends on your specific business needs, such as transaction volume and required features. Providers like Payment Depot offer various plans and pricing models tailored to different business types.
Q: How do tiered pricing models work for merchant services?
In tiered pricing, transactions are categorized into qualified, mid-qualified, and non-qualified rates. The rates vary based on transaction type, with qualified rates typically being the lowest. This model can lack transparency, making it hard to predict costs.
Q: What are the benefits of using an interchange-plus pricing model?
Interchange-plus pricing offers transparency and flexibility. It separates the interchange rate from the provider’s markup, allowing businesses to understand and potentially negotiate their transaction fees.
Q: Can I switch merchant services providers easily if I’m not satisfied?
Switching providers can be straightforward if your contract allows it. Look for providers offering month-to-month terms without early termination fees to ensure you can change if needed without incurring additional costs.
Q: What should I look for in a merchant services contract?
Review contract terms for length, termination fees, and additional charges. Opt for flexible contracts with transparent terms to avoid being locked into unfavorable agreements and ensure easy switching if necessary.
