How Do Merchant Services Work?

Merchant services are the tools needed for a business to process credit card transactions. These tools will typically consist of both merchant accounts and physical equipment which must be installed in the store or shop. Merchant accounts are a type of credit line which is unsecured. When a buyer pays for something using their credit card, they will have a specific period of time to pay back the money they’ve borrowed.

The Merchant Account

Merchant accounts eliminate the need for businesses having to wait for customers to pay back the money they owe on their credit cards. At the end of a business day, the total sales for that day will be transferred and processed, and the funds can then be removed from the merchant account and placed in the businesses’ checking account, a process that will take approximately 48 hours. This allows businesses to receive the proceeds from credit card sales quickly, regardless of when the customer pays off their debt.

To get a merchant account, a business must contact a MSP, or Merchant Service Provider. The reason for this is because most banks don’t offer merchant accounts directly. The MSP will be responsible for establishing the rates you must pay for your merchant account, and they will work in conjunction with organizations such as Visa or MasterCard. The rates will differ from one MSP to another, but will come in the form of monthly fees and a charge per item.  MSPs will also require a business to pay an application fee, annual fee and a fee for cancellation. The fees charged by MSPs may be accrued for about thirty days, after which they will all be withdrawn at the same time.

Credit Card Equipment

MSPs will provide special equipment called terminals which must be installed in a shop so that merchants can process credit cards. These machines will typically have a keypad, scanner and slot where customers can slide their card. In order for a store to install a terminal, they must have phone lines, as the terminal will need to be connected to them. The scanner will read the credit card’s magnetic strip, transmitting the data. The merchant must pay for each terminal, and the rate will vary depending on the MSP who is selling it. A single credit card terminal can cost as much as $200. A quality MSP will not only sell you reliable equipment, but will show you how to use it.

Though the concept of merchant services is easy to understand, the difference in pricing structure can make it complex. Whatever price you’re quoted by an MSP, it is important to make sure the quote includes every rate and fee. Because millions of people prefer using credit cards to buy things, a merchant that doesn’t accept them stands to lose a tremendous amount of money.  Businesses that wish to set up merchant services must apply and receive approval from Merchant Service Providers. Depending on the type of business you run, gaining this approval can be challenging.