The Guide to Merchant Account Providers for Small Business: 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 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. Consumers use cash for just over a quarter of purchases, with debit and credit card payments accounting for more than half of purchases in 2019. And with the rise in 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 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, 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 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 who sell on the go — at markets, fairs, events, etc. You can turn any compatible mobile device into an entire POS terminal.
Accept Payments Online
Though in-person payments still prevail, ecommerce growth has been catapulted during the COVID-19 pandemic. More than half of consumers have increased online transactions spending as a result of the pandemic, and 81% said they plan to shop online through the end of the year.
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.
Related: Can You Accept Credit Cards Online Without a Merchant Account?
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 the POS.
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.
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.
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 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.
- Cancellation fees: This is the amount large or small business owners are charged to cancel or terminate your 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.
Related: Payment Depot vs. PayPal: Which is the Best Payment Processor for Your Business?
- 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
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.
Consider these two tips before starting your search:
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. 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!
Which One Would Fit Best With My 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 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 that you 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
Choosing the best merchant account provider can keep your large or small businesses safe and profits in your pocket. Payment Depot offers wholesale processing rates and no cancellation fees or statement fees. With Payment Depot you can seamlessly accept credit card payments with minimal payment processing fees.
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.