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 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. 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.

Independent Sales Organizations (ISO) and Acquirers

Generally speaking, the 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 accept payments 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.