There’s a new golden rule in modern business – always make it easy for customers to pay. Getting set up to accept payments such as debit cards and credit cards requires a little research, due diligence, and attention to detail. Once set up, however, merchant services are an efficient and effective way to accept payments and make everyday business transactions a matter of routine.
In this article, we’ll break down what merchant services are, the types of merchant services available to small businesses in New Mexico and elsewhere, and some important considerations to make before establishing a relationship with a merchant services provider.
What are Merchant Services?
Merchant Services is a term used to describe a range of financial services provided to businesses including, but not limited to, processing of customer credit card and debit card payments. The term has grown over time to include an even broader range of financial tools that include payments to and from vendors, hardware and software solutions for payment processing, gift cards and loyalty programs, merchant cash advances, and more.
Types of Merchant Services
Different technologies, products, and services are associated with merchant services. The most common types that small business merchants will need to consider are:
- Credit Card and Debit Card Payment Processing: A critical tool for any business looking to go beyond cash sales, the ability to accept and process card payments is now an assumed option by customers of businesses of all sizes. Initial set-up and installation fees can add to the cost of establishing a new small business but are typically worth the initial investment as merchants reap the benefits of additional sales.
- Point-of-Sale (POS) Systems: A POS system typically consists of hardware and/or software systems that small businesses need to accept and process payments. These systems can also assist in reporting, inventory tracking, managing loyalty programs, settling of tips or commissions, and gift card processing.
- Mobile Payments: Cell phones, tablets, and other mobile devices are now widely used by customers of small businesses. Mobile payment software allows for digital payments for goods and services by most connected devices. For merchants who interact in person with their customers, chip readers are a preferred hardware solution that allows for an actual physical swipe or chip read of a debit card or credit card.
- ACH Payments: Automated Clearing House (ACH) payments are financial transactions performed using a U.S. financial network and have become a popular alternative to paper checks and credit card payments. While slower than wire transfers, ACH payments are more affordable, providing significant savings for small businesses that receive recurring payments.
- Merchant Cash Advances (MCA): A useful option for small businesses needing capital immediately, an MCA is repaid using a percentage of future debit and credit card sales, or fixed withdrawals from a bank account, plus fees. Most small businesses are encouraged to consider business loans and other less expensive types of financing before taking out an MCA.
Considerations When Choosing Merchant Services and a Provider
Small businesses have a wide variety of options when it comes to choosing a merchant services provider. As it can be time consuming and expensive to leave a merchant services account contract before an agreed upon termination date, merchants should consider the following issues prior to establishing a relationship with a service provider:
1. Pricing and Fees
A key consideration for any small business choosing a merchant service provider is the merchant fee – the amount charged for processing credit card transactions. In the US and Canada, for example, the typical fee for each transaction is approximately 2.7% + 0.30 USD but can vary according to risk. In addition, monthly merchant bank fees usually apply – merchants will need to consider these costs when determining appropriate pricing of goods and services to be offered.
Merchants should also double check for penalties charged for chargebacks (i.e., disputes from customers) to avoid paying excessive fees (which are often applied regardless of the outcome of the dispute).
2. The Ideal Equipment
Selecting the ideal equipment and software is crucial to establishing trouble-free transactions for both the merchant and customer. Depending upon the business operation’s needs, varying types or combinations of hardware and software can help create the ideal merchant service profile for any type of small business:
Street vendors, food trucks, and on-site contractors will need to consider connectivity issues, as well as ergonomic challenges involving limited operating space.
Brick-and-mortar retailers, especially those involved in the highly competitive sales of mid-to-high-price items, should seek to minimize fees and anticipate future expansion plans, including the integration of online sales into their operation.
For merchants operating exclusively online, transaction speed and chargeback representation requirements (evidence needed to prove a customer dispute is illegitimate) are also important considerations to make prior to signing on the dotted line.
3. Customer Support Availability
It’s an unavoidable part of forming a new small business – things will break, and you will need help fixing it. Determining the amount of customer support that you will need is an important consideration, especially for new merchants.
Small business owners should look for merchant service providers with 24/7 support at no additional charge. Consider contacting customer support lines or online support chats for a merchant service provider and tracking wait times. If you need to conduct communication in a language other than English, double-check to determine whether foreign language speakers are available for customer support.
The best source of information relating to a merchant services provider comes from those with actual experience – small business owners are advised to check the online reputation of a potential provider via online testimonials and consider feedback from other merchants.
Keep an eye out for negative reviews that mention excessive charges or deceptive billing practices, poor customer support, or technical shortcomings, all of which can distract you from your focus and negatively impact your bottom line.
5. Maintaining Equipment and Staying Up to Date
Like other parts of any small business operation, it’s important to remain up to date with the latest technology. Ensure that a potential merchant services provider is keeping up with current chip technology and that regular software updates are rolled out promptly, especially in response to security threats.
The extra effort that future small business owners put into research and due diligence prior to entering into a merchant services agreement pays off in both savings on time and money. In addition, understanding the specific demands of a small business startup, anticipating future growth needs, and staying up to date with maintenance of both hardware and software generates dividends for both business owners and their customers.
Del Norte Credit Union is your one-stop-shop for all business services, including merchant services, business loans, business credit cards, mobile and online banking, and much more. Contact dncuBusiness at (505) 455-4678 today to learn more about our Business Services or open a business checking or business savings account online today.
Other dncuBusiness Resources:
- Grow your money on a timeline of your choice with dncuBusiness Share Certificates
- dncuBusiness Blog: What Is a Business Line of Credit and How Does It Work?
- dncuBusiness Blog: How to Attract and Retain Quality Employees
Disclaimer: This article is for informational purposes only. For advice regarding your specific financial situation, please consult a financial planner or a trusted financial professional.