Merchant payment processing describes how a business processes its credit card, debit card, and other non-cash or check payment methods. The best payment processing systems take only seconds to securely complete a customer transaction.
What is Merchant Payment Processing?
A merchant is a person or company that sells goods or services. There are several types of merchants, including retail, wholesale, affiliate, and eCommerce merchants. They can conduct business in-person, through the mail, online, and over the phone.
If you want to run any kind of retail operation, you're going to have to have the means to process customer transactions. Not only cash transactions, but credit card and debit card payments as well. If you operate an online store, you'll need a way to process online payments.
Merchant payment processing is the term used to describe how retailers accept non-cash in-person and online transactions. Merchant services providers are companies that provide merchant payment processing and other financial services to businesses. They furnish retailers with the tools they need to securely process credit card and online transactions.
Merchant services providers play an important role in a retailer's business operations. Without merchant payment processing services, you wouldn't be able to deliver the level of service your customers expect. Sales would suffer.
If you're new to retailing, you may not know a lot about merchant payment processing services. That's understandable - there are a lot of merchant service providers offering many different services and different prices. Let's spend a few minutes discussing how these services work and how they help a business.
Why Accept Credit Cards and Other Non-Cash Payment Methods?
Why go to the trouble of hiring a merchant services provider? Why accept credit cards and other non-cash payment methods? The answer is simple- because it increases sales.
If you're like me, you don't like carrying around a lot of cash. I don't like writing checks, either. I rarely use cash, and haven't paid with a check, in years; both are worthless for making online payments.
Of course, cash still has its uses. It's still the preferred form of payment for purchases under $10. Cash is easy to use; there are no processing fees and you don't need an internet connection.
The problem with cash is that it limits the purchasing power of a customer. If a customer wants to buy an item that's $10 and they only have $9.99 in cash, they can't make their purchase. The customer is disappointed, but so is the retailer - they missed out on a sale.
Then there's paying with a check. The thing about checks is...why discuss checks? At this point, discussing the pros of checks is like discussing the pros of videotape.
As a customer and a retailer, I really don't like checks. I hate having to wait in line while a customer writes out a check. As a retailer, I can tell you they're a real hassle to process.
Credit cards and similar forms of payment provide the perfect alternative to paying with cash or check. Customers like credit cards because they're easy to use and expand their purchasing power. Retailers like card payments for pretty much the same reasons.
If you're running an online store operation, you have to be able to process online credit card payments. The alternative is to do take payments through the mail or by phone. This would take a lot of time and resources, and I don't think your customers would be impressed.
So, to process these kinds of payments, retail owners like me enlist the aid of a third-party merchant services provider. A merchant services provider furnishes retailers with the tools and resources they need to process a wide range of payment types. This includes not only debit card and credit card payments, but online payments as well.
If you are a business owner, you know how difficult it is to take payments from customers.
You have to deal with the bank and set up an account for your business.
Merchant services is a broad term to describe various services that help businesses do business. These include a wide range of financial services and can include software and hardware products. Merchant payment processing is by far the most important merchant service for retailers.
Merchant service providers (MSPs) are companies that provide the services that enable merchants to process many kinds of payment methods. For brick-and-mortar merchants, this includes credit/debit card payments, contactless payments, and mobile wallet apps. Online stores use merchant service providers to process their online sales.
MSPs provide other services in addition to payment processing. This includes POS hardware like credit card readers. Software solutions include virtual terminals, payment gateways, and online shopping carts.
Merchant service providers go by many names- acquirers, merchant account providers, payment services providers, and payment gateway providers. Basically, any company that allows you to accept non-cash payments is an MSP. They make their money by charging businesses for the services they provide.
Which the merchant service provider is right for your business depends on a lot of factors. You need a provider that offers all the services you need, but at a price point, you can afford. However, before you can get started, you're going to have to open a merchant account.
Unless you're running a cash business, you're going to need to a way to process credit card payments. If you want to process credit and debit payments you're going to need the help of a merchant services provider. And that requires a merchant account.
What's a merchant account? Basically, a merchant account is a bank account that allows your business to conduct and settle various types of payments. It's where the funds from your card transactions will be deposited.
Here's how it works. A customer pays with a credit card. The payment is processed. The bank approves the transaction.
The funds from this transaction are placed in the merchant account while the bill is being settled. This can take a up to fourteen business days to complete. Once the transaction is settled, the merchant account holder can transfer the funds into their business bank account.
Before you get a merchant account, first determine what your business's needs are when it comes to card payments. Be sure to research your options. Consult with each prospective MSP.
You'll have to fill out an application before your merchant account will be approved. The MSP will determine your eligibility for a merchant account based on several factors. Some of the things they look for include how long you've been in business, your location, sales volume, etc.
Understanding Credit Card Processing Fees
MSPs make it possible for businesses to accept credit card payments. But they don't provide their services for free. There are all kinds of fees associated with credit card payment processing services.
Before you select your MSP, be sure to do your research. Different merchant service providers charge different rates. Don't commit to a plan you can't afford.
So what are some of the fees associated with credit card payment processing? Here's a partial list-
Setup fees - This a one-time fee paid to set up your merchant account.
Monthly minimum fees - This is the minimum dollar amount you're required to pay each month in processing fees.
Monthly fees and/or annual fees - These are the ongoing fees you pay for the services provided by your merchant account provider.
Interchange fees - The is a fee that is paid to the issuing bank each time a customer uses their card.
Early termination fees- This is a fee you pay for breaking the terms of an agreement or cancelling a long-term contract before it ends.
PCI compliance fees - These are the fees to maintain your PCI compliance.
Statement fees - These are administrative fees for mailing statements.
Businesses that have a physical presence have to pay fees for each transaction.
It's not easy to manage all the rules and regulations, and it's even harder to deal with the fees.
So how does the credit card payment process work? Even though it takes only a few seconds to complete a transaction, there several steps to the process. Here's a step by step guide-
Your customer decides to make a purchase using their credit card.
They scan their card using a credit card reader. They may be required to enter a PIN or present a form of identification. For online sales, the customer will enter their credit card information manually using a virtual terminal.
The customer's credit card data is transferred from the credit card terminal to a secure payment gateway.
The payment gateway encrypts the data and transmits it to the credit card issuer for approval.
Once the data has been received by the credit card issuer, the sale will either be approved or denied. The answer will be sent back through the network to the merchant's POS.
After the sale has been approved, the retailer supplies the customer with a printed receipt of the transaction.
The payment process is completed with a batch closure that closes out the transactions that have been processed on that day. Funds are routed from the customer's bank to your merchant account.
When the transaction has been settled, you can transfer the funds to your business banking account.
What is PCI Compliance?
What is PCI Compliance? The Payment Card Industry Data Security Standard (PCI DSS) is a set of rules to secure credit card information. It's important because credit card numbers are consistently at risk due to the many ways they're exposed.
In order to process credit card payments, your business will have to be PCI compliant. PCI Compliance isn't a law, but rather a set of security standards adopted by the credit card companies. PCI compliance is mandatory for any company that processes credit card payments.
The PCI Data Security Standard specifies twelve requirements for compliance. In order to PCI compliant, your business will have to-
Use and maintain firewalls.
Change default passwords to secure system passwords. (Many manufacturer default passwords can be found on the Internet.)
Protect stored cardholder data using encryption and other security measures.
Install and regularly update anti-virus software.
Maintain secure systems and applications to prevent data theft.
Restrict access to cardholder data to authorized personnel only.
Identify and authenticate individuals with access to system components
Restrict physical access to cardholder data.
Track and monitor all access to cardholder data and network resources.
Routinely test your security systems and processes for vulnerabilities.
Create and maintain an information security policy for all your personnel.
A merchant account is a type of bank account that businesses use to handle credit card payments. Merchant account processing is when a business agrees to process credit card transactions in exchange for a fee.
Who is involved in payment processing?
Payment processing is a digital service in which financial institutions, acquiring banks, card networks, and card-issuing banks work together to enable credit card processing for merchants.
What is payment transaction processing?
Payment transaction processing is the process that takes place when you swipe your debit or credit card through a card reader or give your credit card to a cashier. As soon as the transaction is processed, the funds are transferred from your account to the recipient's account