What Do Merchant Account Providers Do?

If you’re in the business of making money, there’s an industry of merchant account providers ready to cater to you. Also known as credit card processors, merchant services providers created to enable merchants (businesses) to accept transactions through secure channels. Every merchant needs a merchant account in order to accept payment from credit and debit cards. The merchant, the bank, and the merchant account provider all work together to make these transactions possible. The merchant’s job is to sell products and the bank’s job is to store that money — pretty simple, right? So what exactly do merchant account providers have to do with all of this?

What is a merchant account provider?

Put simply, a merchant account provider allows merchants to accept credit or debit card payments over the phone, online, or in person. Merchants are paid through merchant service providers like iPayment, Flagship Merchant Services, or any other credit card processor. The main responsibilities of a merchant service company are to receive and process sales information from merchants, obtain money from the card’s bank, transfer money to the merchant from the cardholder, and receive authorization for all transactions made. Most credit card processors also offer anti-fraud services, POS terminals, merchant account analytics, virtual account terminals, and eCommerce services. Some merchant providers even offer mobile pay services that include geo-tagging and barcode scanners.

Do you need a merchant account?

Now that you know exactly what a merchant account provider is, you can start thinking about whether or not you need one. If you own a business and want to accept and process card payments without a payment gateway (service that authorizes online payments), you need a merchant account provider. The benefits of using a merchant provider include the customization of commission rates, payment schedules, and a more secure cash flow. If you like quality payment and transaction security, fraud protection, loyalty promotions, and business analysis services, your best option is to go with a third-party payment processor. Make sure you check out each company’s merchant services reviews in order to get the best merchant services possible. 

What are typical merchant account fees?

In a fantastic article for Entrepreneur about choosing merchant providers, Ryan Himmel discusses the importance of understanding fees when choosing a good credit card processor. “The fees that processors charge can certainly add up over time,” Himmel writes. He gives an example of a company making $1 million per year and describes the difference in savings between a 1.75 percent rate and a 2 percent base rate, saying “it [the company] will save $2,500 or more.”

Because providers usually apply fees according to business size, you should really pay attention to the type of fees charged by each merchant provider. For example, a merchant account provider that caters to small businesses will likely have fees based on “volume of transactions” as Himmel puts it; this type of fee would wreak havoc on larger companies. Generally, most banks that provide credit card processing services charge higher rates than third-party processors. Rates will also differ according to whether you process payments online or in person.