Merchant Services

Merchant Services allow businesses of all types to accept credit card or debit card payments for their goods and services.

Overview: Merchant Services:

Most consumers today carry eight or more credit cards and prefer to pay with this method rather then carrying cash or writing checks.

Credit card and debit cards will be used interchangeably from here on.

Further as more and more transaction services are being conducted via cell phones and smartphones (including new services where your these devices acts just like a credit card) - merchant services will take over as the major - maybe the only - form of payment available in the near future.

A brief list of transactions that can be processed via Merchant Services are:

VISA®, MasterCard®, Discover®, American Express®, Diner's Club®, Carte Blanche®, JCB®, private label, electronic check, gift cards, prepaid cards, Electronic Benefits Transfer (EBT), and PIN-based debit, ATM, and former Fleet transactions.

The goal for the consumer is to make the purchase as easy as possible - thus not being required to carry cash or write checks. Further, since most of these items being processed are some type of credit facility (think credit cards) consumers can delay payment through their credit card or purchase items they don't have the immediate disposable income to pay for - allowing them to make purchases they might not otherwise have been able to.

The goal for the merchant (retailer, service business, restaurant, etc) is also to make the purchase as easy as possible. People tend to spend more and purchase more often due to impulse buying. Allowing them ways to purchase quickly can help ensure your business receives more and larger purchases from each customer.

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Benefits:

While most consumers are familiar with credit card terminal at local retail stores, these card swiping terminals are not the only method of accepting credit cards or similar types of payments. Business owners can also accept credit cards, gift cards or even check payments by phone, online or via wireless mobile devices (which are great for trade shows or sales away from your traditional location).

Accepting these types of payments can really improve a businesses revenue and cash flow. If a consumer has a credit card but not the cash to cover the cost of the proposed purchase - and your business does not accept credit cards for payment - you could easily lose that sale. Further, it is estimated that consumer tend to both spend more per transaction and make quicker purchase decisions when paying with credit cards.

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How It Works:

Note: While we use the term retailer often - other businesses (like Wholesalers, VARs, Government Agencies) can and do use Merchant Services to process credit card sales and other transactions - when we use the term retailer we simply mean all businesses that accept credit cards and similar methods as payment for their goods and services).

Although this would seem a very simple process from the consumer's viewpoint, Merchant Services Processing can be somewhat complex involving five parties:

When the consumer swipes or provides their credit card information, this information is first stored in the merchant's terminal or processing system (this is at the retailer or business) or hand inputted by the retailer. The information is then verified by the merchant's (retailer's) processing company (companies like Paypal or Electronic Transfer, Inc.) through a card network association (like Visa, MasterCard or ACH) who then contacts and notifies the card issuer (companies like Capital One, Discover, or Bank of America) of the transaction.

The issuers approves or declines the transaction (if approved - the issuers will put a temporary hold on the consumers credit balance) - then notifies the card association who forward the information that status to the retailer through the terminal or processing system.

The retailer then either completes the transaction or declines the purchase.

From the retailer's perspective:

Once a transaction is approved by the issuer through the card network association and completed by the retailer - the retailer's card processor (sometimes called acquirer) will store the transaction information until the retailer batches their transactions (this could be daily or weekly). Batching is done so that the card processor can then clear the payments and return the funds to the merchant (retailer).

Once the processed is batched the card processor (including any charge backs) clears the batch with the card association who will in turn collect payment from the card issuer and distribute those funds to the card processor; who will credit the retailer and forward payment to the retailer's bank account.

Not an easy process with so many groups (companies) involved.

Keep in mind that any charge backs can be disputed by the retailer before being debited from their account.

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What You Need To Get Started:

Even though most businesses are different regarding how and where they accept payments, the following are usually the very basic all businesses need:

• Some type of transaction system - this could be a Point of Sale terminal (POS), virtual terminal, computer processing software or a phone to call in the transactions.
• A Merchant Services Processor - someone to process your transaction and remit payment - the Merchant Services Provider can also provide the needed equipment to initiate the transaction.
• To receive payments from the processor after batching, the funds need to be deposited into some sort of business bank account.

For online credit card transactions, your business will also need:

• A hosted website that can process transactions securely - this could be through an ecommerce software package or in-house processing application.
• An online Merchant Service processor - Not all Merchant Service Providers handle online transactions but most do these days.

If you want to integrate your merchant processing into your current system or have a single system to track all your transactions and batch and collect payments - you may also need a computer, cash drawer, and bar code scanner.

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Fees And Costs:

With each merchant transaction passing through so many hands, each one of those parties wants their piece of the action (thus, each take a small percentage of the transaction to cover their costs of the processing).

Fees can also be influenced by the volume of transactions, the size of the average transaction (the bigger the better) and the amount of charge backs to each account. These can also vary for new businesses or business owners with bad credit.

Most merchants (retailers or other businesses that accept payment via credit cards or similar means) will face these common fees (keep in mind that all processor have their own set of fees - thus you should ask them about their individual fee schedules):

• Monthly Statement Fee
• Minimum Volume Fee
• Discount Rate Per Transaction Dollar Amount
• Transaction Fee - Regardless of Transaction Dollar Amount
• Charge back Fee
• Credit Card Terminal (for Retail Businesses) - These can be bought or leased

Other possible fees (from MerchantExpress.com) could include:

• PIN Debit Transaction Fees
• Address Verification Service Fee
• ACH Fee or Daily Batch Fee
• Internet Gateway Fee
• Voice Authorization Fee
• Surcharge / Partially-qualified / Non-qualified Fees
• Application / Setup Fee
• Reprogramming Fee
• Annual Fee
• Cancellation or Termination Fee
• Hidden Fees or Junk Fees

The thing to keep in mind is to ask for full disclosure on their fees as you talk with and compare different Merchant Service providers.

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Additional Items To Look Out For:

• Open a separate checking account for your merchant transactions and do not keep any more money in that account then you have too. This will protect you should your processor or your bank seek to freeze your accounts - which they can do if they feel that an over abundant of fraudulent activity is happening with your account.
• Charge backs and disputed charges policies.
• Difference in fees for cards being present and swiped or cards not present.
• Some Merchant Processors may require a reserve account from the business.
• Do your homework on the Merchant Provider you select. Ask other business owners who they use and would recommend, check with the local Better Business Bureau and make sure you read all the paperwork and fine print.
• Beside fees also look into how easy it is to set up and operate the system and level of customer service provided.
• When renting or leasing equipment - make sure you understand the terms of the agreement. Keep in mind that the processor will not tell you when the contract is up or when you have paid in full per the contract. They will just keep charging you the rental or lease fee.

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Future Benefits:

Another benefit of accepting credit cards as payment is the fact that, after a short time frame, your business may qualify for a "Business Cash Advance". A business cash advance is not a loan but an advance against your future sales. You payback these advances with small portions of your future credit card sales - thus providing you capital you need now for working capital, payroll, expansion, inventory, etc and are not saddled with a fixed monthly payment as you move forward - payback is based on future sales - a slow sales month means a lower payback for that month.

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