The Small Business Guide to Merchant Account Providers: What You Need to Know

The Small Business Guide to Merchant Account Providers: What You Need to Know

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 of those? Your merchant account provider. 

What is a merchant account provider?

A merchant account provider is the company that provides businesses with a bank account that enables them to accept credit and debit card payments. When a transaction happens, the customer’s card deposits money into the merchant account. The money is then transferred to the merchant’s business bank account. The merchant account is the middle ground between the customer and the business, and the merchant account 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 and/or debit cards will need to use a merchant account provider to help them set up their accounts. And while there may be some cash-only businesses out there, it’s a dying breed. Consumers use cash for just over a quarter of purchases, with debit and credit cards accounting for more than half of purchases in 2019. 

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

While merchants who conduct in-person sales 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 credit and debit cards. Essentially, any business that wants to sell online or process online payments needs a merchant account provider. 

Merchant account services for small businesses

Merchant account services extend beyond just the bank account. 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 POS is critical for in-person payments, which still account for nearly three-quarters of all transactions. Today’s systems offer inventory control, email marketing, and other business management features. You can use the POS to swipe and/or manually enter credit card information to process payments. With additional features, you can also send invoices, email receipts, and promo codes. 

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

Learn more:

Online payments

Though in-person payments still prevail, ecommerce growth has been catapulted during the COVID-19 pandemic. More than half of consumers have increased online spending as a result of the pandemic, and 81% said they plan to shop online through the end of the year. 

Online purchases, 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. 

Related: Can You Accept Credit Cards Online Without a Merchant Account? 

Virtual terminal

A virtual terminal is an online 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 the 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. Plus, SMBs suffer more: businesses with under 100 employees lose twice as much. Many merchant account 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 company and enables online payments. If you have no plans to process payments online, you won’t need a gateway. But to process online payments, you’ll need one, and many merchant account providers have them for an additional fee

ACH processing

ACH, or eCheck, 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 account providers offer ACH payment processing, so be sure to check if it’s something you need. 

Business funding

Many merchant 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 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 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: Merchant account providers may charge a fee for every transaction processed. 
  • Credit card payment processing rates: Credit card processing fees may apply to each transaction. These are charged as interchange, flat rate, tiered, or wholesale.
  • Minimum processing fee: Some merchant account providers require a minimum amount for each transaction. If you don’t meet the minimum, you might have to pay extra. 
  • PCI compliance fees: This is another hidden fee that merchant 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 the 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. 

Top merchant 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: 

  1. Payment Depot: Payment Depot charges an affordable monthly membership fee and gets merchants access to some of the lowest processing rates.
  2. 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.
  3. Helcim: Helcim charges a monthly fee and is ideally suited to growing and established businesses. 
  4. Flagship Merchant Services: One of the first to axe hidden fees, though Flagship isn’t transparent about its pricing. 
  5. PayPal: One of the most user-friendly and easiest to set up, though known for freezing merchant funds and siding with the customer. 

Related: Payment Depot vs. PayPal: Which is the Best Payment Processor for Your Business?

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

Moving forward with Payment Depot

Choosing the right merchant account provider can keep your business safe and profits in your pocket. Payment Depot offers wholesale processing rates and no cancellation or statement fees. 

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 fit for your biz.

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