Merchant services allow businesses to take card and digital payments.
This can include payments made:
- In person
- Online
- By phone
- Through a payment link
- Using a mobile phone or digital wallet
There are many providers to choose from. However, their prices and services can vary.
Therefore, it is important to understand how the service works and what you will actually pay.
What Are Merchant Services?
Merchant services help businesses accept and process electronic payments.
They can include:
- Card machines
- Contactless payments
- Online payments
- Mobile payments
- Payment links
- Telephone payments
- Payment gateways
- Transaction processing
Some providers offer everything as one package. Others charge separately for different services.
Therefore, always check what is included.
How Does a Card Payment Work?
When a customer pays by card, the payment goes through several stages.
First, the payment details are sent for approval.
The customer’s bank then checks the transaction.
If the payment is approved, the transaction can go ahead.
The money is then processed and later paid into the business bank account.
This is known as settlement.
What Is a Merchant Acquirer?
A merchant acquirer helps businesses accept card payments.
It connects the business to the wider card payment system.
However, many businesses do not deal directly with an acquirer.
Instead, they use a merchant services provider that manages much of the process for them.
This can make taking payments much simpler.
Card Machines
Card machines allow customers to pay by debit or credit card.
They can also accept contactless payments and, in many cases, payments from smartphones and smartwatches.
There are several types.
Countertop Card Machines
These normally stay beside a till or reception desk.
They are suitable for businesses where customers pay in one place.
Portable Card Machines
These can be carried around the premises.
For example, a restaurant can take payment at the customer’s table.
Mobile Card Machines
These are designed for businesses that take payments away from fixed premises.
They can be useful for:
- Tradespeople
- Market traders
- Delivery businesses
- Taxi businesses
- Mobile services
- Events
They usually connect using a mobile network or another wireless connection.
Contactless Payments
Contactless payments allow customers to pay without inserting their card into the machine.
Customers may also be able to pay using a smartphone or smartwatch.
This can make payments quicker and reduce the amount of cash a business needs to handle.
Taking Payments Online
Businesses selling online need a secure way to accept payments.
This often involves a payment gateway.
A payment gateway helps send payment information securely for processing.
Some merchant services include a payment gateway.
Others charge for it separately.
Therefore, check whether gateway costs are included when comparing prices.
Payment Links
Payment links provide another simple way to take payments.
The business sends the customer a secure link.
This could be sent by:
- Text message
- Invoice
- Messaging service
The customer follows the link and makes the payment online.
This can be useful for businesses that do not need a full online shop.
Telephone Payments
Some businesses take card payments over the phone.
These are known as card-not-present payments because the customer and card are not physically present.
These transactions can carry a higher risk of fraud and payment disputes.
Therefore, businesses should use suitable payment systems and security procedures.
What Do Merchant Services Cost?
This is where merchant services can become confusing.
There may be several charges rather than one simple price.
These can include:
- Transaction fees
- Monthly fees
- Card machine rental
- Payment gateway fees
- Setup fees
- Authorisation fees
- Minimum monthly charges
- Chargeback fees
- Early termination charges
Therefore, do not compare providers using the transaction rate alone.
Look at the total cost.
Transaction Fees
A provider may charge a percentage of each payment.
For example, suppose the fee is 1.5%.
A customer pays:
£100
The transaction fee would be:
£100 × 1.5% = £1.50
However, providers can use different pricing structures.
The amount charged may also depend on the type of card or payment.
Fixed Fees
Some providers also charge a fixed amount for each transaction.
This can make a difference if your business takes lots of small payments.
For example, a coffee shop may process hundreds of small transactions each day.
A furniture business may process fewer transactions, but each payment could be much larger.
Therefore, the same pricing structure will not suit every business.
Interchange Fees
You may also see the term interchange fee.
This is one of the costs involved in processing card payments.
However, it is only part of the overall cost.
Other charges can also be added before the final cost reaches the business.
Therefore, the interchange fee should not be confused with the total transaction fee you pay.
Card Machine Costs
You may need to rent or buy your card machine.
Traditional merchant services often charge a monthly rental fee.
Other providers allow you to buy the machine outright.
Neither option is automatically cheaper.
Instead, work out the total cost over the period you expect to use the service.
Settlement Times
After a customer pays, the money does not always reach your bank account immediately.
The time between the transaction and receiving the money is known as the settlement period.
Settlement times vary between providers.
This can be important for businesses that depend on regular cash flow.
Some providers may offer faster settlement for an additional charge.
Therefore, check both how quickly you get paid and how much it costs.
Chargebacks
A chargeback happens when a card payment is reversed.
For example, a customer may claim that:
- They did not make the payment
- Their order never arrived
- The goods were not as described
The money may then be taken back from the business while the matter is dealt with.
The merchant services provider may also charge a fee.
Therefore, businesses should keep good records of orders, payments and deliveries.
Payment Security
Payment information is sensitive.
Therefore, businesses must take security seriously.
You may come across the term PCI DSS.
This stands for:
Payment Card Industry Data Security Standard.
It provides security requirements for businesses and organisations handling card payment information.
Your responsibilities will depend on how you accept and process payments.
Your merchant services provider should be able to explain what you need to do.
Fraud Prevention
Payment fraud can cost businesses money.
Merchant service providers may offer tools that help identify unusual or suspicious transactions.
However, businesses should also have sensible procedures in place.
Staff should know how to handle payments safely and what to do if something looks suspicious.
Merchant Services and EPOS
Merchant services can sometimes connect directly to an EPOS system.
EPOS means:
Electronic Point of Sale.
This is essentially the modern version of a till system.
Integration can make payments easier.
For example, the till can send the amount directly to the card machine.
This means staff do not have to enter the amount twice.
It can also make reporting and checking transactions easier.
Taking Payments on the Move
Some businesses need to take payments almost anywhere.
For example:
- Tradespeople
- Taxi businesses
- Market traders
- Mobile businesses
- Delivery services
- Events
A mobile card reader or terminal can make this possible.
However, think about connectivity.
A card machine is not much use if it cannot connect to the payment network.
Therefore, check mobile coverage in the areas where you normally work.
Merchant Services for Larger Businesses
Larger businesses may need more advanced services.
These can include:
- Multiple card machines
- Several locations
- Central account management
- Online and in-store payments
- Detailed reporting
- EPOS integration
- Accounting software integration
- Different staff permissions
Therefore, larger businesses may need to look beyond the basic transaction price.
Good reporting and easier administration can also save time and money.
Check the Contract
Some providers offer flexible arrangements.
Others require a fixed contract.
Before signing, check:
- Contract length
- Notice period
- Renewal terms
- Early termination charges
- Equipment rental
- Price increases
Also check whether the card machine has a separate rental agreement.
You could otherwise discover that ending one agreement does not automatically end the other.
Comparing Merchant Services
Before comparing providers, look at how your business actually takes payments.
Consider:
How much do we take by card each month?
How many transactions do we process?
What is our average payment?
Do customers pay in person or online?
How many card machines do we need?
How quickly do we need the money?
Once you know this, comparing providers becomes much easier.
Compare the Total Cost
A low transaction rate does not always mean a cheap service.
For example, one provider might offer:
Lower transaction fees + higher monthly charges
Another might offer:
Higher transaction fees + no monthly charge
The first could work well for a business processing a large amount of card payments.
The second could work better for a smaller business.
Therefore, calculate the overall cost based on your own payment activity.
Questions to Ask Before Choosing
Before agreeing to a merchant services contract, ask:
What will I pay each month?
What will I pay for each transaction?
Are there extra charges for certain cards?
Do I buy or rent the card machine?
How quickly will I receive my money?
Are there minimum monthly charges?
What happens if I receive a chargeback?
How long is the contract?
How much will it cost to leave?
A few simple questions can uncover costs that are easy to miss.
The Bottom Line
Merchant services make it easier for businesses to accept card and digital payments.
However, prices can be difficult to compare.
Do not focus only on the headline transaction rate.
Instead, consider:
Transaction fees
Monthly charges
Equipment costs
Settlement times
Security
Contract length
Exit charges
Most importantly, choose a service that matches the way your business actually takes payments.
Understand your needs first. Then compare the total cost.