What are merchant services and where do payments fit in?
Merchant services encompass a range of financial solutions for businesses—and payments are the backbone of it all. Whether you run a small, niche online store or a bustling e-commerce platform, merchant services are a core part of your daily operations as they provide you with the tools you need to accept and manage digital payments.
What is a merchant services provider?
A merchant services provider is like your business's trusty sidekick—the Robin to your Batman. They're what help keep your money movements flowing smoothly and are responsible for facilitating your electronic transactions, from in-store card dips and swipes to seamless online payments.
What is a merchant account and how is it different from a business account?
A merchant account is a special account used for processing credit cards and other electronic payments. While often confused with a business account, these accounts serve different purposes.
Think of a merchant account as a sort of escrow account but for purchases made at your business. It acts as the go-between for customers’ bank accounts and your primary business account. The merchant account, which is held by an acquiring bank, holds the money for batches of transactions until the settlement process is complete. Once settled, the bank transfers the funds into your primary business account.
A business account is much like a personal checking account but used exclusively for business-related transactions. This type of account is what you’d use for things like day-to-day expenses or payroll.
Do I need a merchant account to process online payments?
Traditionally, to obtain a merchant account, you’d need to apply for one through a payment processor, which is notorious for being a long and tedious process.
Today, merchant services providers that offer comprehensive payment solutions like Finix streamline this process and even eliminate the need for a separate merchant account. While you’d still have a merchant account, it would be through the MSP, which would also provide the payment gateway and everything else you needed for payment processing.
Different types of merchant services providers
There are several different types of MSPs:
Payment processors: Processors provide technology for processing transactions between the issuing and acquiring banks, PayFacs, and businesses, but typically do not offer any other services or features.
PayFacs/Payment facilitators: A company that provides online and in-person payment processing services to individual businesses, marketplaces, or SaaS platforms.
Independent Sales Organizations (ISO): An ISO is a reseller of payment solutions. They typically refer companies to banks, processors, or PayFacs they have relationships with.
Merchant account providers: Then, there are merchant account providers, which provide businesses with assistance in obtaining and setting up their merchant accounts. Since an ISO doesn’t provide direct payment solutions, they are also sometimes considered a merchant account provider.
What is an ISO in merchant services?
An ISO, or Independent Sales Organization, is a business that acts as an intermediary between merchants, processors, and card networks. Rather than offering a direct service, an ISO refers your business to an acquirer bank, processor, or PayFac.
While a viable option, the problem with signing with an ISO or an independent agent is the extra payment layers and third-party dependencies they add to the processing equation. Extra layers mean extra fees and additional layers in the support chain.
What is a PayFac in merchant services?
Unlike ISOs, a PayFac (aka payment facilitator) provides payment solutions directly to your business. This includes the ability to process credit cards, debit cards, and mobile payments, along with other tools for managing payments and/or merchants.
PayFacs typically make accepting payments faster for businesses and provide better customer experiences. They still create a layer between your business and the payment processor, but PayFacs remove most of the extra layers associated with ISOs and provide features most processors do not.
Traditional payment processors vs payment facilitators
You can also apply for a merchant account directly through a processor. Because most processors still use older technology, the process is usually complicated and slow in comparison to payment facilitators.
One major difference, however, is if a payment facilitator is also a processor—like Finix is. This gives you the best of both worlds because you’re cutting out all the middlemen in the processing stack and getting all the features of a PayFac.
How do merchant services help you scale your business?
Unlike a traditional merchant account, which typically runs on a legacy processing system, modern MSPs run on newer technologies and can provide payment services that make managing payments faster and easier. There’s also more flexibility and customization options, which allow you to create better checkout experiences for customers.
But one of the most attractive features of using an MSP is how they can potentially save your business money, and even increase your bottom line. For example, with the right merchant services provider:
You don’t have to build or maintain your own systems or hardware, which comes with a hefty price tag and time commitment.
You won’t need to staff a full payment operations team in-house as the MSP brings their payments expertise.
You’ll have higher uptime and better reliability - which can save you thousands—even millions of dollars—depending on the size of your business.
You’ll get better customer support
You can focus on your core product or business
Of course, all of the above are dependent on the merchant services provider you partner with. Each MSP has its own feature sets, varying levels of support, reliability, and different pricing packages. That’s why it’s vital to explore all your options before signing up for any financial service. After all, it’s your money on the line.
What types of features should a merchant services provider have?
There’s more to payments than just accepting them. A good merchant services provider should have a product suite that increases your productivity, helps you optimize revenue, and lets you create better checkout experiences, in addition to saving you time and money.
Here are the top features you should look for when considering a payment provider:
Payment processing with multiple payment methods
Obviously, you wouldn’t need an MSP if you didn’t need to process payments. But you also need to make sure your provider can support the payment methods your customers prefer. Not only that but they should be equipped to be able to adapt to future needs and technologies as they arise.
Must-have payment method options:
Once you get started with payment acceptance, you also have to manage this new part of your business. While a provider like Finix offers support and payment expertise, there are still a few things you’ll need to do on your end.
For example, you’ll need to manage disputes, keep track of settlements and payouts, stay up-to-date on your business’s payment trends, create checkout pages, hook into a shopping cart, and more. Depending on what type of business you have, you may also need to accept payments over the phone, set up invoicing, subscriptions, or recurring billing.
Top 9 merchant services payment tools:
1. Reporting and payment analytics: To optimize revenue, you need access to your payments data. Your data will also give you insight into customer behavior, such as payment method preferences and trends.
2. Dispute management: Managing disputes is one of the most tedious and frustrating parts of accepting payments. A tool for easier dispute management is a must for any business.
3. Fraud detection: Unfortunately, no business is impervious to payment fraud. You want to make sure your payments provider has strong, real-time fraud detection capabilities, along with an easy dispute management system.
4. User management controls: Security is critical when it comes to payments. Controlling who has access to your payment data helps your business remain in compliance and ensures sensitive information is safe.
5. Hosted checkout pages and forms: Building checkout pages or forms requires development resources, which increases your costs and the time it takes to start processing payments. The best option is to find an MSP that offers prebuilt, no-code checkout pages you can customize to match your brand, and that gives you the option to build your own.
6. Payment links: Like providing multiple payment methods, payment links can give customers more convenient and faster checkout options than traditional checkout processes.
7. Virtual terminal: Having a virtual terminal (VT) is vital to businesses that need flexible payment options. With a VT, your business can capture more revenue by enabling you to take over-the-phone sales or key in transactions manually. Many also come with invoicing, subscription, and recurring billing functionality, and help protect against fraud.
8. Invoicing: The ability to quickly and easily generate invoices is an important feature, especially if you have a B2B business and want to offer bill later or partial pay options. An MSP that offers this functionality also helps your business keep track of everything in one place, rather than having to manage payments and invoicing on different platforms.
9. Subscriptions/recurring billing: The option for subscriptions and recurring billing is often part of a virtual terminal suite or can be achieved through your MSP’s payments API. It can help provide your business with more predictable revenue and provide more convenience to your customers.
Easier payment management for your business
Ultimately, merchant services should help reduce the pain that comes along with payment processing. Your provider should be scalable, allow for payment optimization, and provide all the tools you need to manage your payment operations efficiently and effectively.
At Finix, we provide industry-leading uptime and transparent pricing packages that save you money and include all the must-have payment features your business needs to be successful. Our easy, no-code tools simplify payment operations, give you immediate transaction and payment data visibility, let you craft amazing checkout experiences that match the look and feel of your brand, ease your compliance burden, make managing disputes a breeze, and more.
And because we’re also a payment processor, we remove all the extra layers in the payment stack, which not only adds to your bottom line but also means better and faster support when you need it.
Want easier payments management and better processing rates?
Learn more about how Finix’s merchant services can help solve your payments pain.
- BlogPublished 11.30.23
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