Launching a business? Brace yourself—you’ll be learning fast, and one thing you can’t skip is figuring out merchant services providers (MSPs). You’ve met them before, even if the name’s new: they’re the ones making card swipes and online buys work. These companies connect your customers’ payments to your bank, handling debit and credit cards with security you can trust.
Once the internet took off, MSPs went beyond just card readers. Now they power eCommerce with online payments, inventory tracking, and reports that show how your business is really doing.
Don’t forget to check our tips at the bottom for selecting a merchant service provider. Stick with us—we’ll break down the types, tools, and tricks to picking the right one for you.
Table of Contents
What Is a Merchant Services Provider?
A merchant services provider is the company that helps businesses take payments from customers, whether it’s with credit cards, debit cards, online checkout, or even mobile apps.
They’re the ones who supply the tools—like card readers or payment software—and make sure the money moves securely from your customer to your account. Think of them as the behind-the-scenes link between your business and the banks, keeping transactions safe and simple.
A merchant services provider is a company that enables businesses to accept payments from customers
These merchant services providers do more than just process payments. They offer things like merchant accounts, payment gateways, and support to handle cards both in-store and online.
Partnering with one means you can give your customers more ways to pay, cut down on fraud worries, and smooth out the whole payment process. It’s about making life easier for you and better for the people buying from you.
On the practical side, they bring the gear and know-how you need: card terminals for your counter, gateways for your website, or mobile setups for on-the-go sales. Plus, many toss in software to track transactions or spot trends in what’s selling. It’s stuff that helps you stay on top of your finances and maybe even boost your profits by running things a little smarter.
Different Types of Merchant Service Providers
Each service provider offers varying features but tends to fall into one of three main categories. The standard providers you’ll find are:
Merchant Account Providers (MAP)
Account providers are the most common merchant services provider. At a minimum, merchant account providers will:
- Set you up with a merchant’s account
- Provide credit card processing services
Credit card processing services ensure you receive funds when your customers pay with their debit or credit cards. Merchant providers can also assist in setting up a cash discount program or surcharge program if you’re looking for ways to save on processing fees.
All MAPs will give you access to a merchant’s account, but only the larger companies offer processing services. These larger companies are direct processors, and they process transactions via various credit card networks.
Square is one the most popular examples of a merchant provider for small businesses.
Payment Gateway Providers (PGP)
Payment gateways are essential for eCommerce businesses. A merchant account is sometimes included, but not always. You will need a merchant account to have a payment gateway.
Payment gateways are web services that process credit and debit card transactions over the Internet. Payment processing services like a payment gateway provide comprehensive solutions that adapt to merchants’ needs, offering end-to-end integration and reliable transfers.
Payment Services Providers (PSP)
A merchant account is an excellent idea for most businesses and a requirement for accepting card payments. But there are variations, such as PSPs, which small business owners may find useful.
PSPs offer merchant processing services for business owners that only bring in several thousand per month via debit/credit card transactions.
PSPs like PayPal let you accept card payments, but you won’t have to worry about extensive contracts or account fees. For small businesses, those account fees can add up, so the cost savings are a significant benefit.
These terms are why the smallest of businesses should be the ones using PSPs. On the downside, you won’t have an individual merchant ID, and you’re more susceptible to having your account frozen.
Additionally, understanding the total merchant services cost, including fees for any hardware and setup (more on this below), is crucial to ensure you find a provider that offers reliable service at a reasonable price.
What are Merchant Services?
You’ll encounter an expansive range of products and services that not only accept credit card payments but manage inventory and track business growth.
What you need depends on the business you run. Every business needs a merchant account or payment service account, but some features will be irrelevant to you. If you don’t have an online store, you won’t need a payment gateway.
Below are some standard examples of merchant services:
Merchant Accounts
We’ve discussed merchant account providers, but you may still be asking, What is a merchant account?
A merchant account is the account to which you transfer funds from your customers’ credit/debit card payments. Your account provider transfers them into your desired business bank account. Having a business checking account facilitates instant access to these funds and integrates seamlessly with payment processing systems, providing a smooth experience for managing sales transactions efficiently.
Every business that accepts credit or debit card transactions as payment needs a merchant account. Most merchant account providers have full-service accounts with a unique merchant ID. PSPs are still merchant accounts but don’t provide a merchant ID number.
Merchant ID numbers allow your business to be identifiable in payment processing systems. It protects you from fraud and guarantees a bit more stability.
Credit Card Terminals
In-store retailers need credit card terminals to read customers’ credit/debit cards. The hardware transmits card information to the provider’s processing network.
There are two terminal options available:
- Wireless
- Ethernet/Landline Connectors
Wireless versions tend to be a little more bulky and expensive. Plus, you will need a wireless connection or may need a data plan to function. Corded models easily plug into a landline or Ethernet outlet.
You typically can lease the terminals or purchase them from your service providers. In general, you want to buy your terminal outright, as leasing will almost always be more expensive.
You can purchase an EMV-compliant terminal as a baseline technology. Still, models that utilize Radio-Frequency Identification (RFID) and support NFC (Near-Field Communication), like Apple or Google Pay, are becoming even more popular. A great example would be Square Terminal.
Customers are starting to use contactless and cardless payments more and more these days, especially after COVID.
Point of Sales Systems (POS Systems)
Point of Sale Systems put merchant processing and inventory management into one full-screen display terminal.
The software and equipment can:
- Manage operations
- Track inventory
- Monitor sales
Many tablet-based models don’t even need a full computer. Optional hardware account providers can include for POS systems are:
- Check scanners
- Cash drawers
- Tablet mounts
- Printing devices
Some POS companies will also be your merchant account provider, so you’ll have a complete all-in-one system. An example of this would be Harbortouch, a POS system owned and operated by Shift4, a payment company.
For businesses that rely on in-person payments, a well-equipped POS system is essential for streamlining transactions, enhancing customer experience, and managing sales efficiently.
Mobile Payment Systems (mPOS)
mPOS systems let you use your smart device (like a cellphone or tablet) as the processing terminal. A card reader accessory will attach to your phone, and an app will transfer information to your provider.
If you have the financial means to upgrade your mPOS system, opt for ones that include:
- EMV compatibility
- Wireless Bluetooth connection
It’s not mandatory but will show customers your business embraces the future.
Virtual Terminal
Unlike a POS System’s hardware, virtual terminals like Virtual Merchant Services make your computer the card processing terminal via online software.
You’ll be able to enter customer details by hand or with an optional USB card reader. It is the perfect option for remote billing, mail order, or telephone operational sales businesses that lack an eCommerce site. It’s also useful if you need to accept payments through a mobile device on the fly.
You’ll end up paying a little more for a virtual terminal transaction when a card is manually entered, and no physical card is present because there is more risk involved.
Payment Gateway
This simple software is a tool of communication between your eCommerce store and your provider’s network. Essentially, the role of a payment gateway allows you to receive payments online. A service like Authorize.Net is one example.
You can expect to pay an additional monthly fee for gateways since not all merchants need one. With payment gateways, you get the following:
- Customer info database
- Recurring billing
- Encryption or other security features to protect customer data
Online Shopping Carts
Online shopping carts let eCommerce stores customize website features and create a shopping experience that matches their brand.
You’ll have to make sure your services provider is compatible with your desired shopping cart software.
eCheck Processing (ACH)
This eCheck feature lets you scan checks and immediately confirm your customer’s funds are available. Most providers offer this feature.
Cash Advances and Small Business Loans
Many merchant services providers offer more than just payment processing—they can also help you get cash fast through small business loans or merchant cash advances. These options give your business money upfront to cover things like inventory or expansion.
The catch? You pay it back using a chunk of your future card sales. It’s a handy lifeline if you need funds now and know your revenue can handle it later.
Merchant service providers offer to pair this with essential services such as payment gateways, online transaction processing, point-of-sale systems, e-commerce solutions, and loyalty programs, making them a one-stop shop for growth and transactions.
How the Transaction Process Works
Merchant processing services, also known as card-based transactions, involve a seven-step process:
- Customer Begins Transaction: The customer will swipe or insert their card at the terminal system.
- Info Sent: Transaction data like the payment total, card number, and bank info transmit from the merchant software to the merchant services provider network.
- Card Network Connection: Here, the services provider transmits the info to the associated card company.
- Card Company to Bank Connection: The card company now sends this information to your customer’s bank.
- Bank Verification: The customer’s bank ensures the consumer has funds and approves the transaction. If there are insufficient funds, it will reject the payment. The approval or rejection data transmits back to the connected card.
- Card Confirmation: The connected card will confirm the transaction and notify the services provider.
- Transaction Complete: The merchant will finalize the transaction, generating a receipt for the customer.
The approval process can vary between immediately after transaction approval, at the end of the business day, or when the merchant closes. It depends on your business and your merchant account provider’s policies.
Benefits of Working with a Merchant Service Provider
Partnering with a merchant service provider can really lift your business. It’s about letting you take card payments so more customers can buy from you. They handle the tech to make credit and debit cards work, opening the door to more sales and a bigger crowd without extra hassle.
Lets You Take Payments and Grow Your Crowd
Taking credit and debit cards changes the game. With a merchant service provider, you get tools to accept payments in-store, online, or on phones—whatever your customers prefer. No one’s walking away because they forgot cash. Plus, the fast, safe way they handle payments builds trust. People feel good shopping with you, and that keeps them coming back, growing your sales and your regulars.
Tips for Selecting a Merchant Service Provider
To accept credit card payments, you’ll require a merchant account. There are loads of merchant account providers around, but you’ll want to research several critical aspects before selecting one.
By evaluating these features, you can estimate your total costs. You also can ensure you’re working with an ethical company.
1. Know that cheaper does not mean better in the world of merchant services.
Don’t fall into this trap! Low merchant processing rates may seem nice on the surface, but credit card processing companies are infamous for sliding in undisclosed monthly and annual fees.
These pricey additions span across most services provided, with providers shoehorning them in as a means of “maintaining” your merchant account.
So don’t only focus on processing rates! It’s the total costs that matter.
The overall costs you’ll need to consider include:
- Account fees
- Processing rates
- Transaction fees
- Chargebacks
- Other miscellaneous fees
Different merchant service providers may use other processing rate models, which can make pricing comparisons difficult.
Processing fees aren’t the best for deciding on a provider. Instead, it would be best if you examined plenty of other aspects before making a decision.
2. Go with merchant account providers that are transparent (and reasonable) about their fees.
Merchant accounts won’t be cheap, especially if your company is brand new. You’ll have to pay the typical processing fee for each transaction. However, merchant account providers are notorious for their constant “surprise” fees that pay for your account maintenance.
So make sure your merchant account provider has a fee system that is transparent and reasonable. For the sake of simplicity, reasonable fees are ones that provide a necessary service. The cost of this fee should be on par with said service.
Fees should be transparent and available before signing up. Don’t become the victim of the fine print.
Typical fees you can expect from merchant account providers are:
- Activation/Application Fees: Some merchant services providers may charge a fee at the beginning of your service. It should be a one-time deal. Avoid merchant account providers that charge this fee.
- Recurring Account Fees: These can be annual or monthly. Almost every merchant service provider will charge a fee for account maintenance. You’ll have to judge what’s reasonable here but look at the services they provide and the merchant processing services you need.
- Chargebacks: If your merchant processing has to refund a charge, you’ll face a chargeback. Returned items, technical errors, or even fraud can result in a chargeback.
- Monthly Minimums: This is the total amount you must reach in processing charges. You’ll have to pay the difference if you fail to meet the minimum. If you have a small or seasonal business, opt for merchant account providers that don’t require monthly minimums.
- PCI Compliance Fee: This is an annual fee you pay to ensure your business remains PCI compliant. It protects your customer’s data, like their names and credit card information.
- Early Termination Fees: Some merchant service providers charge early termination fees to dissuade you from switching companies. These fees can be expensive and lock you into an individual provider. However, some merchant account providers work with you on a month-to-month basis.
3. Choose a provider with fair processing rates.
Every merchant services provider will charge a processing fee. The processing rate is the percentage of a payment that goes to your merchant account provider.
There are a few different pricing models companies use:
- Interchange-Plus Pricing: This is the most transparent pricing model and is usually less expensive overall. The issuing bank and credit card association takes a small fee (the interchange), and your processor takes a percentage (the plus). The formula is typically interchange + X%.
- Direct Interchange: Here, the merchant will charge a single monthly fee without a percentage rate. This scheme is better for big, high-volume businesses.
- Flat-Rate: Best for new and small businesses. Every transaction gets charged an unchanging percentage rate and typically a per-transaction fee. Your provider completely discloses these rates on their website.
- Tiered Rates: With this model, transactions fall into three levels. There are qualified transactions, mid-qualified transactions, and non-qualified transactions. Your charges depend on a wide range of criteria, like the payment entry and items purchased. It isn’t easy to guess what you’ll be paying with tiered rates.
4. Check out the company’s website and advertising gimmicks to get a feel for them.
A good, trustworthy merchant processing services company will be transparent on its website. After all, merchant providers are not exempt from unfair and deceptive marketing practices.
To ensure you’re working with an ethical company, check to see if their website features:
- Articles or blog posts that outline the ins and outs of credit card processing
- Varied and precise options to reach out to customer support (email, online chat, and telephone number)
- Full transparency about their rates and recurring fees
- Legitimate, positive testimonials from their merchant clients
- No “lowest rates on earth” fluff and frill
Selecting the right merchant service provider is crucial for your business operations, so make sure to evaluate these factors carefully.
If their website is full of nothing but gimmicky nonsense, it’s best to turn away and find someone else.
5. Understand the fairness of contract terms.
The merchant processing world’s got a bad rap for its contracts—think long, tricky deals you’re stuck in even after they’re supposed to end. Thankfully, things are shifting.
A lot of providers now offer month-to-month options instead of those old-school traps. That’s a win for most business owners—no long commitments, just flexibility.
At the very least, make sure there’s no early termination fee lurking in the fine print. Picking a provider with fair terms like these gives you control over your payments and can make a real difference in keeping costs down, speeding up transactions, and leaving your customers happy.
6. Remember that high-quality customer support works in your best interest.
Service for your transactions is vital. You never know when your credit card terminal will give out or when you’ll face a glaring chargeback. You’ll want a customer support team you can trust at your side for these unfortunate incidents.
The top providers should host an in-depth FAQ on their website for minor issues. It will help you fix issues on your own if you’re dealing with a problem after business hours.
Most merchant account providers have tech support through phone or email. Website chat functions are also becoming the norm. If phone support is available 24/7, know that merchant processing companies will outsource support agents. Therefore, you may not be able to contact someone who can solve your problem.
The best option you could hope for is a merchant services provider that assigns you a dedicated merchant account representative.
7. Don’t be afraid to ask questions.
Asking merchant account providers questions can help you make your decision on the best provider for you. Consider questions like:
- How quickly can hardware replacements arrive?
- What are your processing limits?
- What are your funding times?
Conclusion
The services your business requires from a merchant account provider will depend on, well, your business!
Whether you need a payment gateway for your eCommerce market or a terminal for your retail spot, you want a merchant account provider equipped to handle your needs. Always go with a reliable service provider that is transparent with you from the get-go!
