What Is a Merchant Services Provider?
The days of cash-only payments are over. Customers today often prefer to use electronic or digital payments for increased convenience and personal hygiene. If your company wants to accept credit cards, debit cards and other electronic forms of payment, it needs to work with a merchant services provider.
You have plenty of choices when looking for a merchant services provider (MSP), but not all companies are created the same. Knowing what services you need and what features to look for ensures you find the MSP that’s the best match for your business.
What Is a Merchant Services Provider?
A merchant services provider is a go-between company that acts as a mediator between your business and credit card companies and banks. If your company wants to accept multiple forms of payment beyond cash, it needs to work with an enterprise that offers secure merchant services.
The goal of most MSPs is to facilitate and secure the payment process for companies and their customers. Along with acting as the intermediary between banks and your company, an MSP may also allow you to connect your online and physical stores’ payment systems, ensure you stay compliant with security regulations and offer customer support.
Depending on your needs, your MSP may provide payment processing, payment gateways, point-of-sale (POS) systems and a merchant account.
Merchant Account Provider vs. Payment Gateway
Payment gateways and merchant account providers fall under the merchant services provider umbrella. In some cases, an MSP may provide both payment gateway and merchant account services.
Merchant Account Provider
A merchant account provider offers your company a merchant account, which you need to accept credit and debit cards. The merchant account holds funds for you while a bank authorization occurs. Once the authorization takes place, the money transfers from the merchant account to your business’s bank account.
A merchant account isn’t the same as a typical bank account. While the money in the account technically belongs to your business (provided the credit or debit card company approves the transaction), you can’t directly access the money and withdraw it as you would funds in your savings or checking account.
Instead, you must rely on the account provider to transfer the money from the merchant account to your business bank account. The merchant account provider subtracts any fees related to the transactions from the balance before transferring the funds to your bank.
You need to have a merchant account before you can accept credit and debit cards. Some merchant account providers also offer payment processing services and products such as card readers, point-of-sale systems and mobile payments.
A payment gateway is a type of merchant services allowing your company to process credit and debit cards and other electronic payments. Online shopping, in-store shopping and using a credit or debit card in-store wouldn’t exist without payment gateways.
Payment gateways provide the software that transfers data about a transaction from point A to point B. When customers provide their credit card information online, that information travels along the payment gateway to the issuing and acquiring banks. The payment gateway encrypts the card information, protecting it from third-party interception.
Merchant Services Products
Merchant accounts and payment gateways are just two examples of the products an MSP can offer. Additional products that may be available from a merchant services provider include:
Credit Card Terminals
Credit card terminals are machines that allow you to swipe, insert or tap a payment card during an in-person transaction. The machines capture the card’s account number and other relevant details either through the embedded computer chip or a magnetic strip. Often, the terminals have keypads that allow a customer to tap in their security code or personal identification number (PIN) to verify their identity during a transaction.
Once the terminal has captured and verified the card data, it then sends it through the payment gateway for authentication and approval.
The number of credit card terminals your company needs depends on its size. If you have a small brick-and-mortar store with a single checkout register, you may only need a single terminal. If you have a larger store with multiple checkout lanes, you’ll need one terminal for each lane that accepts payment cards.
Some card terminals are meant to be portable. These versions attach to a smartphone or are handheld, allowing your employees to carry them around your store or restaurant and accept payments on the go.
A point-of-sale system is the machinery and software that allows you to ring up customers’ purchases and accept their payments. Typically, POS systems are a combination of hardware and software. They include the credit card terminals you use to accept payment cards and the computers or tablets your employees use to input orders. POS systems may also include a barcode scanner or connect to the camera in a smartphone to read Universal Product Code (UPC) labels on products.
Traditionally, a POS system was the cash register used in-store. Today’s systems are much more complex. Along with the terminals and tablets you may use to ring up in-person purchases, your POS system can include online shopping carts and checkout processes. You may also be able to use a POS system to track your store’s inventory and run customer loyalty or engagement programs.
A merchant services provider can allow you to accept mobile payments or use your mobile device as a terminal.
When a customer wants to use their mobile device to pay for a purchase, several components must come into play. First, the customer needs to set up a mobile wallet on their smartphone and load their credit or debit card into the wallet. Then, they must enable near-field communication (NFC) on their device.
To use their mobile device as their payment method, customers need to visit companies that have NFC-equipped terminals and accept mobile wallet payments. Your merchant services provider may offer mobile payment options.
A virtual terminal allows your business to accept card payments without having the card physically in front of you. If you accept online payments, you’ll need a virtual terminal to collect customers’ card numbers and other pertinent information. You can also use a virtual terminal to accept payments over the phone.
When using a virtual terminal, you must manually input the customer’s card information, typing in the number, expiration date and security code. Some virtual terminals also require the billing ZIP code as an added layer of security. You also must put in the sale details, including the amount of the transaction.
Virtual terminals can be web-based, part of an app or a component of a larger POS system.
How Does a Merchant Services Provider Work?
As the go-between for a business and a bank, the merchant services provider is responsible for facilitating payment transactions. While a lot goes on behind the scenes when a customer makes an electronic payment, the process itself typically lasts a few seconds. A merchant services provider goes to work once a customer provides payment information:
- The MSP sends the payment information to the acquiring bank.
- The acquiring bank passes on the payment details to the issuing bank to get authentication and approval. The issuing bank can either approve or deny the payment.
- The approval or denial gets sent to the acquiring bank, which then sends the information to the MSP.
- If the payment is approved, the merchant account receives an approval and confirmation of the transaction. The money is then transferred from the customer’s bank account or credit card to the merchant account.
Merchant Services Pricing
Several pricing models are available for merchant services. At CSG Forte, we charge a per-transaction fee based on the type of payment. For example, a credit card transaction, we charge 2.95% of the amount. For Automated Clearing House (ACH) transactions, the per-transaction fee is 1% plus 25 cents.
The exact pricing structure can vary based on your agreement with your MSP.
How Quickly Can You Get Started With a Merchant Services Provider?
If you’re ready to work with an MSP, the first step is to gather the information the provider will need to review your company and confirm you’re eligible to receive its service. Providing as much information as possible on your application helps streamline the process, meaning you can start more quickly.
Some of the documents you’ll want to include with your MSP application are:
- Your business’s tax ID
- Your website
- Your mailing address
- Your business’s bank account information
Who Can CSG Forte Help?
If your business wants to accept more forms of payments than it currently does, CSG Forte can help. We offer merchant services for small- and medium-sized businesses. We’ll allow you to accept electronic payments, including credit and debit cards, in-person payments, online payments and over-the-phone payments. You’ll get peace of mind that your transactions are secure and your customers’ payment data is safe.
If you have any issues with our merchant or payment processing services, our customer service representatives will assist. We help you troubleshoot issues and provide support with customer disputes.
Choose CSG Forte for Merchant Services
Take the steps toward achieving a simpler payment process by choosing CSG Forte as your merchant services provider. Contact us today to start your application or learn more.
Have questions about working with a merchant services provider? Check out our answers to some of the most frequently asked questions.
Do You Need a Merchant Services Provider?
If your business wants to accept credit and debit cards or other forms of electronic payments, then you need to work with a merchant services provider. While you’ll need an MSP, the type of MSP your business requires can vary depending on the services and the type of payments you want to accept.
What Is the Difference Between a Merchant Services Provider and Merchant Account Provider?
A merchant account provider is a type of merchant services provider. A merchant account provider can give your company access to a merchant account. Some merchant account providers also handle payment processing, but not all do.
What’s the Difference Between a Payment Service Provider and Merchant Account Provider?
A merchant account provider gives your company access to its own merchant account. Payment service providers can also provide access to a merchant account, but the account won’t exclusively belong to your business. Instead, a payment service provider groups businesses together and uses the same merchant account for them.
While either a payment service provider or merchant account provider allows your company to accept electronic payments, it typically takes longer to receive an account from a merchant account provider than to be approved by a payment service provider.
Payment service providers typically take on more risk when accepting businesses than merchant account providers. They may have stricter transaction limits or put more holds on transactions compared to merchant account providers.
How Can You Ensure Payment Security?
Security is critical in this day and age. Customers want to feel confident that their payment information is safe from hackers, and companies want to know that the MSPs they work with prioritize security.
There are a few things to look for to ensure payment security. All payment details should be encrypted during transmission and when the system is at rest. Fraud management tools are also important, and the MSP should comply with Payment Card Industry (PCI) standards.
How Do You Choose a Merchant Services Provider?
Choosing an MSP can be a straightforward process. You need to assess your business’s needs and the type of payments you wish to accept, then do your research and look for a provider that offers them. Also, consider how you want to accept payments, such as online, in person or over the phone. Pay attention to the security measures the provider has put in place, the fee schedule and the amount of customer support the MSP provides.
It’s also useful to look for an MSP that can integrate with your existing systems or provide ample support to help you migrate over.