What is "Merchant Services"?

Michael Gavin |

May 21, 2014

What is Merchant Services?

Collecting and processing payments from your customers is a basic yet essential function of your business. Payment processing options are continuously expanding, making it critical for business owners to have a complete understanding of each available method. Merchant services is a broad term that is used to define a wide range of payment processing options. Most automatically associate merchant services with debit and credit card processing, but there are actually a wide range of other options encompassed in its broader definition.

Merchant Services: Payment Processing

Debit and Credit Cards – The merchant services umbrella is most typically associated with transactions that are paid for with a credit or debit card. Debit and credit are the most popular merchant services payment methods today, but it’s plausible that mobile technology will eventually end up replacing physical cards over time.

ACH – Automated Clearing House (ACH) transactions, also referred to as Electronic Funds Transfer (EFT), enable customers to make a payment from their checking account without needing to write a physical check or use a debit card. The majority of these transactions involve a regular monthly payment, but there are also many businesses that offer this option for individual purchases.

Gift Cards – Offering your customers the opportunity to purchase items with gift cards is a good way to encourage higher sales without needing to worry about fraud. After all, if a consumer enters your store with a gift card, the money that is on that card has already been successfully collected. As an added bonus, customers will only be able to utilize their gift cards at your business. Most people end up spending more money than they have available on their gift card, and this will lead to additional revenue.

Check Guarantee – Accepting checks provides consumers with an easy payment method, but it also increases a company's risk of dealing with fraud. Fortunately, the check guarantee process eliminates the majority of this risk because it allows companies to be reimbursed for checks that bounce.

Electronic Benefits Transfer – Eligible individuals can receive access to funding via an electronic benefits transfer (EBT) program. This option is more commonly referred to as food stamps, but the EBT card can also be used to purchase non-food items in some instances. These cards are used in the same method as credit and debit cards, and they are typically designed to automatically deny any purchases that exceed the user's available funds. Due to this, EBT is one of the most secure ways to receive a payment for eligible purchases.

Merchant Services: Value-Adds

Point of Sale – Retail stores utilize the point of sale (POS) process to complete each of their transactions. POS is more commonly referred to as checkout, and this is the reason that most consumers use the term checkout lane. POS includes all of the software and hardware that makes it possible to ring up purchases and accept payments, including cash registers, credit card terminals and touch screens.

Loyalty Programs – Many businesses offer a loyalty program that rewards consumers for making purchases. This can include everything from a club card that offers specific discounts to a points card that allows customers to exchange points for goods or services.

Check Conversion – It is becoming increasingly common for businesses to use paper checks in the same way as ACH. In fact, these checks can be run through ACH to automatically transfer funds from the consumer's bank account without anyone from the company needing to make a physical bank deposit. This allows business to save a lot of time, and it also makes the process of validating checks much quicker.

Payment Gateway – Companies that take advantage of an e-commerce payment gateway are able to receive authorization for credit and debit card payments via a secure payment processor. This option is very similar to POS, but it is typically utilized to process payments that are entered by a consumer onto a website or an automatic phone answering service.

Online Transaction Processing – This option allows companies to easily track and retrieve transaction processing. In other words, businesses that have online transaction processing in place can increase the accuracy of their expense and revenue forecasts, and they will also be able to greatly reduce their reliance on paper trails.

Merchant Cash Advance – Companies that need access to funding but are unable to secure a loan from a bank can turn to merchant cash advance. This allows them to receive a short-term loan that typically requires daily payments until the loan has been settled. Additionally, a merchant cash advance can be structured to provide a business with one lump sum payment in exchange for providing the lender with a set percentage of debit and credit card sales for a specified time.

Mobile Payments – Many people are already harnessing the power of their smartphones by using a mobile wallet to safely store and transmit all of their payment information. Online wallets are also becoming extremely popular, and this allows consumers to utilize a PIN to complete future transactions instead of entering their credit card information each time. Websites such as PayPal provide additional mobile and online payment options, and they enable people to keep a balance in their user accounts that is separate from their credit cards and bank account.

Utilizing Merchant Services for Your Business

Merchant services applies to a wide variety of products and offerings. With so many payments relying upon merchant services, it is imperative for each business owner to carefully consider which options they are going to offer and what companies they will partner with to complete each transaction.

If you’re concerned about keeping things simple for your staff and customers, you should at the very least be set up to process credit and debit cards, mobile payments and ACH or check conversion. Each additional payment method that you embrace will have a positive impact on your bottom line.