Starting a business is a complex process for various reasons.
Besides establishing what you’ll sell and who you’ll sell to, you need a plan to market your business and grow your brand. You’ll need to think about transaction fees, checkout systems, and advertising systems. You’ll also discover that there’s a deep learning curve when it comes to actually running and managing a small business.
You’ll probably come across new terminologies that might leave you overwhelmed. A common term you’re likely to come across while building your business is a merchant service provider. To collect payments from your customers, you’ll require a payment processing solution, which you can only obtain from a merchant service provider or MSP.
This piece will shed light and offer a comprehensive overview of what is an MSP and things you should know before opening a merchant account.
To understand what this term means, you must understand the phrase merchant services. You are a merchant who sells services or products while the software and hardware solutions that permit your transactions are merchant services.
Also called MSP, this term describes any company that allows merchants to accept debit or credit card payments and alternate payment solutions. Typically, they provide a broader suite of services that accompany their payment processing, including payment gateways, business data, and POS (point of sale) software. Loyent is a merchant service provider.
At times, MSPs are called merchant account providers or processors. Before the initiation of e-commerce, merchant services were initially an offline concept. That is, you’d take money from a card using a piece of hardware and you’d track the purchases.
Subsequently, your bank account would receive money from your POS and complex payment gateway solutions were unheard of. Today, if you need to receive payments worldwide, you require more than a POS system.
Over the years, merchant services have evolved, enabling credit card payments and virtual terminal merchandise to occur online. An MSP, therefore, grants you access to the tools necessary to handle important transactions and is liable from your POS to the payment gateway.
What is a Merchant Account?
This term denotes a form of a business account, which permits your business to receive debit and credit card payments. Essentially, this account operates on an agreement between your bank, credit card processor, and business for the settlement of processed transactions.
The funds that originate from processing debit and credit cards at your business are initially deposited into a merchant account before being funded to your business account, typically on a daily basis.
It’s worth noting that this isn’t an official bank account, and it doesn’t store funds for a prolonged period. Since the account operates on an arrangement with a particular processor, they can’t transfer funds between payment processors.
Things You Should Know Before Opening a Merchant Account
Identify the Credit Cards Your Business Will Accept
MasterCard and Visa are the two major credit cards that almost all businesses except. You might consider accepting Discover and American Express. Even though these cards are associated with increased rates, your clients will expect your business to accept the cards and doing this will give them the freedom to pay through their preferred means.
Recognize the Associated Charges
Recognizing the precise amount, you’ll be paying is crucial before opening an account. Keep in mind that the structure of credit card processing charges will differ across processors. This ranges from a flat rate to a proportion and could differ based on the card type.
All these could add up fast, so you want to be certain that you’ve done the research and know precisely what you’ll be paying.
Establish a Payment Mode that Suits your Business Best
These days, businesses can opt to accept payments through various means. These comprise a POS system, online via a website, or over the phone using a virtual terminal. Ensure the provider you’re assessing provides your preferred payment mode.
Establish Whether You Run a Low or High-risk Business
Depending on the nature of your business, the difficulty of acquiring a merchant account might differ. In the field of merchant services, some business types are deemed high or low risk. The latter describes businesses including restaurants while the former denotes businesses that run in industries such as cannabis dispensaries.
A low-risk business typically has an easier time opening an account. If you run a high-risk business, you must research and locate a service provider that deals in high-risk business to enhance your likelihood of securing approval and ensure you secure the best pricing.
Types of Merchant Service Providers
It’s worth noting that not all MSPs provide similar features, but most fall into one of the numerous categories that help distinguish them from their competitors. The most common MSPs are:
Merchant Account Providers
Generally, they provide basic card processing services to ensure you receive money when a customer pays offline or online. Although all merchant account providers can set you up with a merchant account, only a handful of the biggest companies can provide processing services simultaneously to process transactions through credit card networks (Mastercard, Visa, American Express, etc.). The amount you spend on this provider will depend on the type of processing services you need.
Payment Gateway Providers
As e-commerce and online sales increasingly become popular, payment gateway providers are equally obtaining more traction. The solutions permit you to receive online payments and you might or might not obtain a merchant account, so you might need to obtain one from a third-party provider.
Payment Service Providers
Also referred to as ‘PSP’, these providers offer an alternate solution to companies that want to receive different payment methods.
You find that smaller organizations don’t always require a full MSP to receive debit or credit card payments while payment service providers such as Square or PayPal facilitate online payments without a dedicated account.
PSP accounts are ideal for companies that want to maintain low costs and adapt simple technology. Beware that these providers have a high likelihood of freezing or terminating your account without notice.
Furthermore, they don’t provide robust customer service options, making them a great option for businesses that process a few thousand dollars monthly in debit or credit card transactions or operate seasonally.
Forms of Merchant Services
Most MSPs offer a wide range of services and products to permit merchants to receive debit and credit card payments while managing their inventory and tracking other business aspects.
Your merchant needs will depend on your business type and nature. While all businesses require a merchant or payment service account, other features will only benefit particular kinds of businesses. Here are some common merchant services:
Merchant account
These essential accounts function as a middleman between your business’s bank account and your customer’s bank account. They’re established purposely for companies that want to receive and make payments.
This isn’t your typical bank account. Rather, they simply allow you to accept debit and credit card transactions or other modes of electronic payment from customers with the help of a payment terminal or payment gateway. They’re simply accounts where funds from processed transactions end up before your provider transfers them into a specified business account, for instance, a business checking account.
POS Systems
Point of sale or POS systems differ from payment processing hardware and a credit card terminal. Instead, the solutions merge the functions of a credit card terminal with a computer display and integrated software. Your POS software will aid the management of things such as analytics and inventory. You can also use the system to monitor sales or obtain information for tax reasons.
Numerous POS systems feature add-on options such as dedicated scanners and receipt printers. Other providers offer elective accessories, for instance, tablet mounts and check scanners, enabling you to accept any payment mode through one device.
Credit Card Terminals
You need a hardware product with the capacity to read your customers’ debit and credit cards and subsequently transmit the information to a provider’s processing network.
Credit card processors are available in a virtual or physical format. If you own a brick-and-mortar store, you might require credit card processors to use with customers in person. You can purchase terminals outright or rent it from your MSP.
Most providers support similar terminals, but you should purchase yours directly from your provider. Terminals need a software load, which requires installation before they can process transactions.
Unfortunately, in Canada you can’t purchase a terminal from a third party and re-program the software to use with a credit card processor. The terminal must be purchased through your provider.
You might want to avoid terminal leasing because of its non-cancelable nature and the fact that it will cost you more than the terminal’s value over the lease’s lifetime. When shopping for a terminal, you should opt for an EMV-compliant model. Alternatively, you could opt for NFC-based payment approaches, which are increasingly gaining popularity among customers.
Other MSP Features
MSPs provide a blend of convenience and security to businesses looking to sell services and products in store or online. Without the appropriate service provider, you’ll have a hard task trying to establish a successful store since it would be impossible to accept payments.
Some leading MSPs give customers peace of mind by enabling enhanced payment security. It’s worth noting that your MSP can assist with things such as PCI compliance, which puts customers’ minds at ease.
Since your business stores an encrypted cardholder, you’ll enjoy security. You can also obtain protection from merchant service accounts in the form of chargeback protection. This implies that when a dispute arises concerning an item sold to a customer, transaction reversal will occur, and the customer will receive a reimbursement.
Other merchant account features include:
Online shopping carts
Some MSPs and payment service providers can assist with shopping cart software. Most often, your e-commerce building tool is the best place for obtaining the software. However, you should confirm whether it’s compatible with your MSP before investing.
Virtual terminals
The delivery of these software solutions occurs over the cloud. They can often turn tablets, computers, or iPads into portable POS systems. This means you can enter transactions manually into the system or simply use a USB-connected card reader.
Cash advances
If you require additional money for launching your business, an MSP can at times allow you to access extra cash. In exchange, you might relinquish a segment of your earnings back to the lender until you repay your debt. Just note that merchant advances differ from loans since you don’t have to repay a set amount every month.
To learn more about opening a merchant account, connect with one of our payment advisors. We’re always happy to answer any questions you may have.