What are Merchant Services and What Does My Business Need?

From purely online stores to strictly brick-and-mortar ones, picking the right payments hardware and software can help keep your business running smoothly–and save you from restricting and overpriced contracts. Before you even think about making a decision though, it’s best to understand what merchant services are.

If you’re starting or running a business, odds are you’ve come across the term “merchant services,” but there are so many moving parts beneath that umbrella term that it can get confusing. Luckily, we’re here to break it down for you so that you can find the perfect mix of merchant services for your unique business. From purely online stores to strictly brick-and-mortar ones, picking the right payments hardware and software can help keep your business running smoothly–and save you from restricting and overpriced contracts. Before you even think about making a decision though, it’s best to understand what merchant services are. Basically it is all the hardware and software a business needs to make transactions. Services include merchant accounts, POS systems, card terminals, payment gateways, virtual terminals, and e-commerce shops. Unfortunately, in this ever-growing technological landscape things are a little more complicated than the simple cash registers of yore, but when you break it down into the individual parts it is easier to see what is going to work best for you.

What Are Merchant Services?

Here are the items that typically fall underneath the merchant services umbrella:

Merchant Accounts

First things first, in order to process and record transactions you have to set up a merchant account with a payment processor. It is essentially a bank account that holds funds from debit and credit card purchases until they are completed and ready to be transferred into your business’ account. Alternatively, businesses that are small or just getting started can get away with using services such as PayPal or card readers like Square, but these services are generally less optimized for larger businesses.

POS Systems

A point-of-sale, or POS, system is the software that facilitates transactions between a business and its customers. What was once taken care of with a simple cash register now often requires a bit more sophisticated services to deal with debit and credit card transactions as well as online purchases. Choosing the right POS system for your business is a bit of a process (check out our tips here), but once you do they can offer fundamental data and analytics about inventory and customer habits making them integral for your customer’s experience.

Card Terminals

If your business accepts credit and debit cards, you’re going to need the hardware to connect your customer’s card to your POS system. From the tried-and-true cash register to the more modern Square reader, there are plenty of options when it comes to card terminals. However, frills and glam don’t mean anything unless they work for your unique needs. Make sure to consider where your customers are buying from (On mobile? In stores?), how many individual terminals you’ll need, and what kind of terminals are supported by your POS system.

Payment Gateways

The next piece in the puzzle is the tool that connects your POS system with your merchant account. This payment gateway is crucial for your customer’s experience because it helps protect their sensitive card information while their transaction is being processed. Sometimes a payment gateway is included in your merchant account, but if it isn't, check out this year’s top contenders to help you narrow down your choice.

Virtual Terminals

The merchants services your business need are completely dependent on the kind of purchases you accept. Virtual terminals are strictly for companies who do phone orders but don’t have an online shop for their customers to use. Basically, it does the same thing as a physical terminal, but it lives online and allows businesses to take their customer’s card information, plug it into their processor manually, and complete the transaction.

E-Commerce Shop

Similarly to a virtual terminal, and e-commerce shop performs the same function of a physical card terminal. The difference with an e-commerce shop is that customers can input their own information into the online system which then gets passed through the payment gateway to your merchant account.

The Best Solution

Obviously, there are a lot of merchant service options out there, so how do you find the best combination for your business? The first place to start is to assess how your business operates. Do you have a physical store? Do you offer an online shop? Can customers order over the phone? All of these variations—including all of the above—will help to determine what kind of tools you’ll need to complete your transactions. If you are running a strictly brick-and-mortar operation, it significantly decreases the number of the above-listed services you’ll need. However, you still need to process your customer's card purchases. The first step is to set up a merchant account, or some alternative. Additionally, you’ll need a POS system to handle all your customer-to-business transactions. Once these are in place, you can focus your attention on choosing a card terminal that works best for you. This terminal will have to work with both your existing POS system and your company’s general aesthetic. While style should never come before substance, card terminals can be ugly, and if it’s all the same go with the model you actually want displayed in your store. In the payment industry, one-size-fits-all is rarely a useful term. It may make things a little more difficult, but taking the time to chose the POS system and card terminal pairing that actually aids in your transaction and customer experiences will always be more beneficial than a pre-packaged POS integration.Choosing the best POS system for your business is no simple task, but taking the time to avoid the temptation of a one-size-fits-all option—that will most likely end up costing you in hidden fees and restrictive contracts—makes all the difference. Luckily some POS systems are industry specific (i.e. retail, restaurant, etc. specific). These options will greatly reduce the number of choices you have to make, but you still have to remember to consider your unique needs within your industry. Additionally, you can narrow down your options to local or cloud-based systems depending on if you need your business to work on-the-go. Your perfect POS system will support all of your business’ transaction needs in addition to providing the opportunity to add on special features that take your business to the next level.

Check Your Inventory

The more options you offer your customers when it comes to card transactions, the more services you will need to process them. However, unless you want to start from scratch every time, each tool you add has to be compatible with the ones you already have in place. Taking inventory of all the tools you have is a great place to start when you are trying to decide which merchant services you need. If you already have a card terminal in place, but you want to add an online shop to your business, look for e-commerce shops that match with both the hardware (terminals) and software (POS system and payment gateway) you are already using. This list will greatly reduce both your choices and options, which will save you time so you can start making more money.

Michael Seaman

Michael Seaman

Michael is the co-founder and CEO of Swipesum. A veteran of the payments industry, Michael and his brother Stephen have led Swipesum since its inception in 2016. In his free time, Michael enjoyes time with his three children.

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