Should you sign up for merchant services through your bank?

Rounding it up

• Banks offer lots of great services but most partner with another company to offer payment processing.
• These companies specialize in payment processing allowing you to save money and have a more efficient process.

If you're a small business owner you're likely looking for three things in your business relationships: affordability, expertise and efficiency. The first two are no-brainers. You want to make sure you're getting the best possible business partner at the lowest possible cost. You also want to ensure you're getting a partner that will work with you to meet your goals and knows what they're talking about. 

But that last one can get a little hairy. Having an efficient payment relationship can help facilitate faster payments. It can make your customers happy because they can make their purchases faster. And, it can make you happy because you get your money faster. So it begs the question, why doesn't your bank also take care of your payment processing? Well, they kind of do, in a way. 

Read on to learn more about how your bank offers payment processing services, why you probably wouldn't want them too and why Swipesum is the best way to navigate these waters.

(Interested in consulting with one of our experts on this topic and more? Book your free consult today!)

What is a Merchant Account in Payment Processing?

Before we get too far, let’s define our terms. Payment processing is the connection between the merchant’s bank and the customer’s account, enabling businesses to accept payments. There can be many different players in the middle of that relationship, but distilled down, this is exactly how it works. It’s crucially important because it ensures your customers can buy your products and you get paid.

Here’s the details:

1. Your customer comes into your store or goes online and makes a purchase with their credit or debit card. Your merchant terminal sends a request for authorization to the payment processor.
2. The payment processor then submits the authorization via any number of different card networks, to the customer’s bank, called the issuing bank.
3. The issuing bank will then approve or deny the transaction, the payment processor sends the decision back to the merchant’s bank and the merchant and the purchase is complete.

Things proceed behind the scenes in a similar fashion:

• At the end of the day, all of the transactions are batched up and sent to the payment processor, who then sends each to the appropriate issuing bank.
• The issuing bank transfers funds to the merchant’s bank, which then puts it into the merchant’s account, less interchange fees.
• Interchange fees are the cost of the processing that is carried by the merchant.

As you can see here, the payment processor is a crucial part of the infrastructure in payments. They effectively communicate with all of the parties and ensure that the proverbial trains run on time. So do banks do this kind of work in house? Well, yes and no.

What is a Merchant Account?

A merchant account is a specialized type of business bank account that enables businesses to accept credit and debit card payments from their customers. Think of it as a bridge connecting your customer’s credit account to your business checking account. When a customer makes a purchase using a credit or debit card, the funds are transferred from their account to your merchant account, and eventually to your business bank account. This seamless transfer of funds is crucial for modern businesses, as it allows them to accept electronic payments and cater to a broader customer base. Without a merchant account, businesses would be limited to cash transactions, significantly restricting their growth potential.

What is Bank Merchant Services?

Bank Merchant Services refers to the payment processing solutions offered by banks, enabling businesses to accept credit card, debit card, and mobile payments. While banks provide merchant services to their customers, they typically partner with third-party payment processors like Fiserv or Worldpay to handle the actual transaction processing. This means that while the service is branded by the bank, the backend operations are outsourced to specialized companies. As a result, the bank acts as a middleman, often leading to higher fees and less direct control over support and technology.

Do I Need a Merchant Account?

If your business plans to accept credit and debit card payments, a merchant account is essential. This account provides a secure and reliable way to process credit card payments, ensuring that transactions are handled efficiently and funds are transferred promptly. Even if your business operates online or through a mobile app, a merchant account is necessary to facilitate electronic payments. However, if your business only accepts cash or alternative payment methods, you might not need a merchant account. But in today’s digital age, offering multiple payment options, including credit card payments, can significantly enhance customer satisfaction and boost sales.

Acquiring Banks in Merchant Services

Acquiring banks play a crucial role in the merchant services ecosystem. Unlike regular banks that only act as distributors or referral partners for payment processors, acquiring banks are the actual entities that process card payments on behalf of merchants. They handle the settlement of funds between the merchant and the issuing bank (the customer’s bank) and are responsible for underwriting merchants and managing payment risks. Additionally, they work closely with the payment gateway to ensure seamless communication with the credit card company for verifying sufficient funds and authorizing transactions.

Who Are Acquiring Banks?

Acquiring banks are financial institutions that hold the relationship with card networks such as Visa, MasterCard, American Express, and Discover. Some of the most notable acquiring banks in the U.S. include:

• Chase Paymentech (JP Morgan Chase)
• Bank of America Merchant Services (Bank of America in partnership with Fiserv)
• Wells Fargo Merchant Services (Wells Fargo in partnership with Fiserv)
• Elavon (subsidiary of U.S. Bank)
• Worldpay (acquired by FIS)

These acquiring banks provide direct access to payment processing, offering businesses a streamlined approach to payment acceptance, settlement, and customer support. Because acquiring banks directly process transactions, they have more control over the entire merchant services process, allowing them to offer competitive rates and quicker support.

How Are Acquiring Banks Different from Other Banks?

Many banks offer merchant services, but most do not process payments themselves. Instead, they act as distributors or referral partners for larger acquirers or Independent Sales Organizations (ISOs). These banks essentially outsource the actual payment processing to third-party acquirers like Worldpay or First Data (Fiserv).

For example, The Bank of Missouri Merchant Services is a referral partner for Worldpay. This means that while you may open a merchant account through The Bank of Missouri, your transactions are processed by Worldpay. The bank doesn't directly control the payment processing and typically cannot provide the same level of support or competitive pricing as the acquirer.

Why Buying Directly from Acquiring Banks or Payment Consultants Is Better

When shopping for merchant services, there are key reasons why working directly with a merchant acquirer, a merchant account provider, or an independent payment consultant is often a better choice than going through a distributor or referral partner:

1. Lower Rates: Acquiring banks set the actual processing fees (also called “buy-rates”) that distributors and referral partners often mark up to make a profit. When you go through an acquiring bank directly or use a consultant who works with multiple acquirers, you avoid additional markup fees, resulting in better overall rates.
2. Faster and Better Support: Referral partners and distributors must go through the acquirer for any technical support or changes. This adds a layer of complexity and slows down responses to merchants’ issues. When working directly with the acquirer or through a consultant, you get faster, more efficient support because you’re cutting out the middleman.
3. Transparency in Pricing: Acquirers can offer more transparent pricing and service agreements. Distributors or ISOs may bundle fees, hide costs, or impose longer contracts with early termination fees, which can make it difficult for merchants to switch providers if they’re unhappy with the service.
4. Better Customization: Acquiring banks have more control over the merchant services they offer and can provide tailored solutions based on your business’s unique needs. Distributors often offer cookie-cutter packages that might not be optimized for your specific industry or transaction volume.

Payment Processing Referral Partners & Distributors: Higher Costs & Limited Control

Banks that act as referral partners, like The Bank of Missouri, generally have higher costs because they operate under the pricing structure and buy-rates dictated by the acquiring bank (e.g., Worldpay). These referral partners also have limited control over the actual services offered, meaning any complex payment issues, custom needs, or advanced support requests must be routed through the acquirer, which adds time and frustration for the merchant.

Opt for Direct Acquirers or Payment Consultants

For businesses looking to get the most out of their payment processing in terms of cost, technology, and support, working directly with merchant service providers, an acquiring bank, or an independent payment consultant is the best approach. These entities offer more control over fees, better support, and the flexibility needed to optimize payment processing. By avoiding referral partners and distributors, businesses can ensure they are getting competitive rates without the unnecessary overhead often added by intermediaries.

Benefits of Using a Bank for Merchant Services

Opting for a bank to handle your merchant services can offer several advantages. Firstly, banks often provide more secure and reliable payment processing systems, which can help mitigate the risk of fraud and chargebacks. This added layer of security is crucial for maintaining customer trust and protecting your business. Additionally, banks may offer competitive pricing and lower fees compared to some third-party merchant account providers, potentially reducing your overall payment processing costs. Banks also frequently provide additional services, such as payment gateway integration and credit card surcharging, which can streamline your payment processing operations and further reduce expenses. By leveraging these comprehensive services, businesses can enjoy a more efficient and cost-effective payment processing experience.

Drawbacks of Using a Bank for Merchant Services

While there are benefits to using a bank for merchant services, there are also some potential drawbacks to consider. One significant disadvantage is that banks often have stricter requirements and regulations for opening merchant accounts, which can make it more challenging for some businesses to qualify. Additionally, banks may charge higher fees and rates compared to third-party merchant account providers, increasing the cost of payment processing. This can be particularly burdensome for small businesses with tight margins. Furthermore, banks may offer less flexible payment processing options, limiting the types of payments your business can accept. This lack of flexibility can be a hindrance, especially for businesses that need to accommodate a variety of payment methods to meet customer preferences.

PNC Merchant Services Review

• Overview: PNC Merchant Services provides a wide range of payment processing solutions, including POS systems, online payments, mobile payments, and gift card services. They cater to businesses of all sizes and aim to streamline payment acceptance through their robust infrastructure.
• Backend Processor: PNC partners with Fiserv (formerly First Data), one of the largest payment processors globally, ensuring a stable and scalable platform.
• Notable Merchants: PNC Merchant Services is popular with small to mid-sized businesses across various industries. Specific large merchants are less prominent, as PNC typically focuses on SMBs.
• Review: PNC offers a full suite of services but often ties their merchant accounts to long-term contracts with early termination fees, which can be restrictive. The solutions are relatively straightforward but lack customization for more complex businesses. Additionally, businesses should be aware of the monthly fee associated with their merchant accounts, as it can impact overall expenses.

US Bank Merchant Services Review

• Overview: US Bank Merchant Services helps businesses process credit card payments in-store, online, and via mobile. They also provide fraud prevention tools, payment gateways, and reporting services to give business owners better control over transactions.
• Backend Processor: US Bank partners with Elavon, a major global payment processing provider that offers a reliable and scalable backend infrastructure.
• Notable Merchants: US Bank services both small businesses and larger enterprises, particularly in hospitality and retail sectors. Elavon is known for its work with Marriott and other high-profile companies.
• Review: US Bank Merchant Services stands out for its strong fraud prevention tools and data security offerings. However, some users report that the fee structure can be higher than that of competitors, especially for smaller businesses. Additionally, there is a monthly minimum fee that merchants are required to pay each month in processing fees, which can add to the overall cost.

TD Bank Merchant Services Review

• Overview: TD Bank offers merchant services through their partnership with First Data (Fiserv). They provide credit card processing, POS systems, online payment gateways, and mobile processing, making it a versatile solution for businesses of all types.
• Backend Processor: TD Bank’s merchant services are powered by Fiserv, providing businesses with a reliable and scalable backend infrastructure.
• Notable Merchants: TD Bank tends to focus on SMBs, though they do serve some mid-sized enterprises. They cater to a wide range of industries, particularly retail and service-oriented businesses.
• Review: TD Bank Merchant Services offers decent customer service with personalized support, but the fees and long-term contract commitments are often cited as pain points. Businesses that require more sophisticated or flexible solutions might find TD's offerings somewhat limited.

Bank of America Merchant Services Review

• Overview: Bank of America Merchant Services, in partnership with Fiserv, offers a variety of payment processing solutions, including POS systems, mobile payments, e-commerce solutions, and reporting tools. The bank has a strong focus on providing comprehensive solutions to businesses of all sizes.
• Backend Processor: Bank of America Merchant Services is powered by Fiserv, ensuring reliability and scalability for payment processing.
• Notable Merchants: BoA serves a range of businesses, from small local merchants to larger enterprises. They are well-known for offering robust payment solutions to both brick-and-mortar and e-commerce businesses.
• Review: The range of services offered is extensive, and the Clover POS system is popular among small to mid-sized businesses. However, businesses often cite high fees and complex contracts as significant drawbacks. BoA’s service is solid but may not be the most affordable option.

Truist Merchant Services Review

• Overview: Truist offers merchant services through a partnership with TSYS, providing businesses with payment processing, e-commerce solutions, and reporting tools. Truist focuses on providing personalized service to businesses and offers tools designed to meet the needs of both small businesses and larger enterprises.
• Backend Processor: Truist’s merchant services are backed by TSYS, a global leader in payment processing.
• Notable Merchants: Truist Merchant Services is primarily focused on serving small to mid-sized businesses. Their service is often highlighted in local and regional business markets, rather than with global or national brands.
• Review: Truist provides reliable and secure payment processing solutions, but they lack the breadth of features and technology available from larger providers. The personalized service is a key selling point, but businesses that need more advanced features may find Truist limited.

Chase Bank Merchant Services Review

• Overview: Chase Bank Merchant Services provides an extensive range of payment solutions, including in-store, online, and mobile payment processing. As one of the largest banks in the U.S., Chase has a large merchant services division that caters to businesses of all sizes, from small businesses to large enterprises.
• Backend Processor: Unlike many banks, Chase Bank runs its own proprietary processing platform, without outsourcing to a third party. This allows them to provide integrated banking and payment solutions.
• Notable Merchants: Chase Merchant Services is used by major national brands, such as United Airlines and Starbucks, along with many SMBs and larger enterprises in retail, hospitality, and e-commerce.
• Review: Chase Merchant Services is highly regarded for its competitive pricing, transparent fee structure, and strong technology. The bank’s ability to offer end-to-end solutions (from bank accounts to payment processing) gives them an edge. However, their contracts can be complex, and termination fees might apply.

Wells Fargo Merchant Services Review

• Overview: Wells Fargo offers merchant services through a partnership with Fiserv (formerly First Data). They provide businesses with solutions for in-store payments, mobile payments, and e-commerce, along with fraud prevention and chargeback management tools.
• Backend Processor: Wells Fargo’s payment processing is backed by Fiserv, ensuring access to a global network and robust infrastructure.
• Notable Merchants: Wells Fargo caters primarily to SMBs but also works with mid-sized and some larger businesses. Their solutions are popular with local and regional retailers, as well as service-oriented businesses.
• Review: Wells Fargo offers solid, reliable merchant services with excellent fraud prevention tools and a wide range of payment options. However, the reliance on Fiserv means fees can be higher compared to some competitors, and the long-term contracts may not appeal to all businesses.

Independent Sales Organizations (ISO) and Merchant Service Providers

Generally speaking, banks do not directly offer payment processing services. Instead, they work with ISOs or acquirers to assist with processing transactions. These are individual companies that help move money between merchant banks and issuing banks. They grease the wheels, keeping the money flowing. For the convenience, merchants pay a tiny sliver of the purchase price to cover the cost. ISOs and acquirers work directly with merchants to via point-of-sale terminals or online stores.

So where do banks come in here? Banks often have relationships with certain ISOs. Banks can be as involved as they want to be with ISOs however. Depending on how much or how little they want to do, they may have a more robust or farther relationship from the ISOs or Acquirers they work with. In some ways, this is an ideal situation for banks:

Simplicity

Without payment processing companies, merchant/acquiring banks would have to work with thousands of various banks to reconcile the money they're owed each day. It would be disorganized and take a whole ton of resources to properly handle all of the things necessary to quickly and easily process millions of transactions

Scale

Even the largest payment networks, like Visa and Mastercard don't have the resources to appropriately process millions of transactions everyday. It would be next to impossible to process all the transactions in a timely manner, let alone have the personnel necessary to answer questions and assist customers.

Cost

It costs quite a bit of money to process transactions and have the staff and resources to do it properly, especially when you're trying to run other parts of your business that make far more income. It's just a whole heck of a lot easier to rely on another company to handle it, especially since ISOs specialize in processing as well.

Knowledge

At the base level, banks simply aren't merchant services experts. When you've got support issues, integration questions or anything more than the dollars and cents, they simply won't be prepared to answer. A support agent might be available via a random 1-800 number but that's about the limit.

If you're navigating payment processing in any capacity, our experienced experts can help with a free consultation — no fuss, no hassle.