Merchant services allow businesses to accept card and other electronic payments. This might be through a card machine in a shop, a payment page on a website or a link sent to a customer.
The cost is not always as simple as one fee per payment. So, before choosing a provider, understand how the service works and what you will actually pay.
What Are Merchant Services?
Merchant services is a broad term for the systems businesses use to take electronic payments.
Depending on your business, this could include:
- card machines
- contactless payments
- online payments
- telephone payments
- payment links
- mobile card readers
Some businesses need only a simple card reader, while others need several payment methods linked to their till, website or accounting system.
How Does a Card Payment Work?
When a customer pays by card, several organisations can be involved in moving and approving the payment.
You do not need to understand every technical step. For most businesses, the important point is that the payment is authorised, processed and then paid into the business’s bank account.
The provider normally charges for this service.
Card Machines
A card machine allows customers to pay in person using a debit or credit card, phone or other supported device.
There are different types. Some sit beside a till, while others are portable or use a mobile connection.
Choose the type around how your business takes payments. A restaurant may need portable terminals, for example, while a small market trader may prefer a simple mobile card reader.
Taking Payments Online
Businesses selling through a website normally need a way to process online payments.
This is often provided through a payment gateway or a payment platform that includes the gateway as part of its service.
The payment page needs to work well for customers and keep payment information secure.
Also check whether the service works with your website or ecommerce system before signing up.
Payment Links
Some services let you send a secure payment link by email, text or another messaging service.
The customer opens the link and pays online.
This can be useful for businesses that take payments remotely but do not need a full online shop.
Understand the Fees
Merchant-service charges vary between providers and plans.
You may pay:
- a percentage of each payment
- a fixed fee for each transaction
- monthly service charges
- card-machine rental
- setup charges
- online payment fees
- other account or service fees
Some providers use simple pricing, while others have more detailed fee structures.
So, do not compare offers using one percentage alone.
Percentage and Fixed Fees
Suppose a provider charges a percentage of the payment plus a fixed transaction fee.
A fixed fee matters more on small purchases because it represents a larger share of the sale.
For example, a 20p charge is relatively small on a £100 payment but much more significant on a £2 payment.
This means the cheapest provider can depend on both how much you take in card payments and the size of your typical sale.
Look at the Total Cost
The easiest way to compare merchant services is to look at what they are likely to cost your business over a full year.
Start with:
Annual card sales
Then consider:
Transaction fees + fixed payment fees + terminal costs + monthly charges + other fees
This gives you a much better comparison than looking at the headline rate.
Different Cards Can Cost Different Amounts
The fee may not always be the same for every type of payment.
Costs can vary depending on the card, where it was issued and how the payment was taken.
For example, an online payment may have a different cost from a payment made in person.
If your customers use a wide mix of payment methods, check how the provider’s pricing works rather than assuming every transaction costs the same.
When Will You Get Your Money?
Card payments do not always arrive in your bank account immediately.
Check how long the provider normally takes to pay funds to you. This is often called the settlement period.
For a business with tight cash flow, receiving money sooner can be important.
Also check whether faster settlement costs extra.
Contracts and Equipment
Some merchant-service agreements come with a minimum contract period, particularly where card terminals are rented.
Before agreeing, check:
- the contract length
- terminal rental
- setup costs
- notice needed to leave
- early termination charges
- what happens to the equipment when you leave
A low transaction rate may be less attractive if it comes with expensive equipment or a long contract.
Integrated Payments
Some businesses connect their card machines directly to their till or other business systems.
This can reduce manual work because the amount entered into the till is sent directly to the payment terminal.
Larger systems may also connect payments with stock, bookings or accounting software.
Integration can be useful, but only pay for it if it solves a real problem for your business.
Keep Payments Secure
Businesses taking card payments need to protect payment information.
The card industry uses security requirements known as PCI DSS. The requirements that apply depend on how your business takes and handles card payments.
Your payment provider may help with this, but do not assume that using a provider removes all responsibility from your business.
Keep equipment and systems secure, and follow the security steps required for the way you take payments.
Refunds
Check how refunds work before choosing a service.
Some providers may keep the original transaction fee, charge another fee or deal with refunds differently depending on the plan.
If your business issues refunds regularly, these costs can matter.
Chargebacks
A chargeback can happen when a card payment is disputed and the money is taken back through the card-payment system.
For example, a customer might say that they did not make the payment or that there was a problem with the purchase.
Keep good records of sales, receipts, deliveries and customer communication. These can be important if a payment is disputed.
Also check whether your provider charges a fee for dealing with chargebacks.
Watch for Extra Costs
Headline transaction rates do not always show the full price.
Depending on the service, there may be charges for terminals, statements, refunds, chargebacks, payment gateways or other features.
Read the pricing carefully and ask about anything you do not understand.
A slightly higher headline rate with simple pricing can sometimes be easier to manage than a lower rate surrounded by extra charges.
Review Your Service
A merchant-service agreement that suited your business two years ago may not be the best fit today.
Your sales may have increased, customers may pay differently or you may need fewer or more terminals.
So, review the service from time to time. Look at what you actually paid over the previous year and compare it with the amount processed.
This gives you a useful measure of your real payment cost.
Before Choosing a Provider
Start with how your customers normally pay.
Then estimate your monthly or annual card sales, typical transaction size and number of payments. Also decide whether you need card machines, online payments or both.
Finally, compare the total cost, contract terms, settlement time and features you genuinely need.
The lowest advertised transaction rate is not necessarily the cheapest service for your business.
Key Points
- Merchant services let businesses take card and electronic payments.
- Compare the total cost rather than one transaction rate.
- Fixed fees can have a bigger effect on small transactions.
- Check terminal costs and contract terms.
- Find out when payments will reach your bank account.
- Understand refund and chargeback costs.
- Review the service as your business changes.
Important Information
Energility provides general information to help you understand energy, household and business costs, services and ways to save money. It is not financial, legal, tax, technical or professional advice.
Prices, tariffs, grants, government schemes, regulations and other information can change. Costs, savings and calculator results are estimates and your actual results may be different.
Before making an important financial decision, signing a contract or carrying out significant work, check the latest information and consider getting advice from a suitably qualified professional where needed.
Energility may receive a commission or other benefit from some links or services. Where this applies, we aim to make it clear. This does not increase the price you pay unless stated otherwise.
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