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Merchant Services: What You Need To Know

Updated 07/28/2020
What small business owners need to know about merchant services

You've likely heard of merchant services before, but if you're confused about what it actually is, you're not alone. When people use the phrase, they're typically referring to the service a business uses to accept and process payments.

However, as technology has evolved, so has the payment industry. Merchant services is more of an umbrella term now, encompassing all payment process features including point of sale systems and payment gateways.

But don't panic. Below we dive into all of these features in more depth, covering everything you need to know for your small business.

Merchant Service Features

Card Processing

Merchant services are first and foremost card processing – the services and physical technology required to process debit and credit card payments. Interestingly enough, the moment a customer runs their card is only the beginning of the provider's job.

The service provider's next step is a series of back-and-forth communication between your business' bank and your customer's bank. The end goal is to ensure customer payments are secure.

This part of the process is pretty important. You would never shop somewhere that didn't prioritise financial security.

Online Payment Gateways

What happens behind the scenes when you enter your credit card to shop online

When you make an online order, you type in your credit card information and click the order button – but do you know what happens after that?

An online payment gateway is the transfer of information between multiple stakeholders. It happens in the few seconds between playing your order and hitting the order confirmation page.

This gateway is what enables a purchase to be made when a physical card isn't present and the merchant cannot verify the customer's identity. It's what allows your business to accept various forms of payment digitally while securing all payment and personal information.

Pro-tip: When you research merchant services for your e-commerce business, see if your chosen provider bundles online payment gateway. This is crucial for businesses who want to securely accept payments online.

Point Of Sale

In recent years, point of sale (POS) systems and merchant service providers have become one and the same. If you're in the market for both merchant services and a point of sale system, you can likely find a few options that'll fit your business' needs.

To learn the ins and outs of point of sale systems, take a look at another article in our Learning Centre, How to Choose a Point of Sale System.

Pricing Structures

Typically, merchant services will offer one of three pricing options:

  1. Flat rate. A percentage of the transaction value and sometimes an additional small flat fee per transaction.
  2. Interchange plus. The amount your merchant services provider pays the card distributor (like Visa or Mastercard) for each transaction, plus the markup the provider charges your business.
  3. Tiered pricing. Bundled pricing based on your business' transaction volume.

Beyond the above common base pricing models, your business can incur miscellaneous fees, including:

  • Application fees (this should be waived)
  • Monthly minimum penalty fees
  • Statement fees (this should be waived)
  • Monthly service fees
  • PCI compliance fees

Merchant Services Comparisons

Authorize.Net homepage

Authorize.Net was built specifically for e-commerce merchant service needs. This option has one of the most secure payment data protocols on the market, which can simplify your business' PCI compliance, and enables your business to process online payments from all major credit card networks.


Square merchant services homepage

Square point of sale systems are a good option if your business operates both digitally and through in-person transactions. Square offers many options to fit your business needs including free hardware and software.

If your business already has a smart device to connect to, your costs through Square's merchant services will be the 2.6% payment processing fee + a nominal fee per transaction.

Intuit QuickBooks POS

Intuit QuickBooks POS homepage

The main benefits of QuickBooks' merchant services are no payment processing fees and a simple pricing structure. There's an upfront cost for the point of sale software, which ranges based on which plan you need, and that's it – you're ready to go.

Merchant services can be tricky, but you have a variety of options. The key is to do research based on the specific needs of your business and ask well-educated questions of your potential provider. You want to choose with confidence, and you're already halfway there!

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