Merchant Services

What are Merchant Accounts?

In the most basic sense, a merchant account is a business arrangement between a merchant and a credit card processing service. This arrangement allows you to accept credit cards and other payments (debit cards, loyalty cards, gift cards) from your customers. The processing service sets your business up with the technology needed to authorize transactions. They are the intermediary between you and the bank issuing the credit card. They are also responsible to put money generated into your bank account.

What are Merchant Services?

Credit card processing for business remains the core function, but along with this comes a range of options. Merchant services may include a website shopping cart, specialized accounting and custom equipment for credit card data entry. This is the invisible “back end” that keeps things running smoothly. Along with this variety of services is a menu of fees and charges.

What are Some of the Costs?

When you are shopping for the best merchant services for your business, the trick is to match how you will be handling card acceptance to what each service provider offers. Only by comparing apples to apples can you figure out which provider is best for any particular situation.

Some of the costs and fees are:

  • Gateway Fee – This pays for whatever type of electronic connection you send data through. It can be a phone line, an Internet connection or a connection to a private network.
  • Monthly Minimum – This fee is based on sales goals. If you fail to meet an agreed level of transactions a month, you will be charged the difference. Agreeing to a higher minimum can get you a lower discount rate.
  • Discount Rate – This is the percentage you pay on sales. It is calculated on the entire amount of credit card sales in a month. Various levels will apply, depending on the brand or type of the credit card you accept – so Visa, MasterCard, AMEX and Discover will all have a different discount rate.
  • Real Time Solution Price (RTSP) – a one-time fee for systems that run credit cards in real time instead of holding all transactions until close of business and running them as a batch. Since immediate verification of the card is important to prevent fraud, if you take credit cards, you will want a real time solution. It is actually quite rare to find a business that doesn’t use RTSP. The old system meant “crunching” (imprinting) a credit card onto a multi-copy slip and having the customer sign it, then running a batch of slips at the end of the business day.
  • Transaction Fee – Unlike the discount rate, the transaction fee is a small charge for each time you send data through the gateway, whether or not you are making a sale. While ten individual sales of item X will generate the same discount rate fee as selling all ten at once, selling them separate would mean ten transaction charges. Even things that do not mean a sale (like a rejected credit card) will generate a transaction fee.
  • Other fees – Commonly, a statement fee (or reconciliation fee) is charged for generating a monthly statement; there may be membership fees for some cards; annual fees for having a merchant account; credit card terminal leasing fees; cancellation fee (for opting out of a contract); online processing fee (for custom software or data storage); and other fees that vary by service processor.

How do I Decide?

The best merchant account for a particular business will combine the best service with the lowest fees in areas that are important to the nature of that business. If you are primarily online, for instance, a free or low-cost shopping cart functionality may be of primary interest. If offline, on the other hand, the possibility of a free credit card terminal will be a focus instead.

The two main fees to play off one another are the transaction fee and the discount rate. If your business does a large number of transactions that are relatively small amounts, then a lower transaction fee ( a per-sale charge) is your goal. On the other hand, if you do fewer individual sales, but they are high cost, then the transaction fee isn’t as important as getting a low discount rate.

The next area of interest is what type of cards you think you will be accepting. Are check cards something your customers use over traditional credit cards? What about debit or ATM cards? The fees for each will vary and getting the best rates for the cards you are accepting is one goal.

If accepting credit cards seems too complex, there’s a way to cut through the fog. Give as much business information to the service provider as possible, and ask for a complete, basic package price. This is the no-frills version. Use this price in your comparison shopping between providers.

Next, add options and see how the prices change. Some available add-ons are:

  • Immediate or next-day deposits into your account. This can help cash flow, but be wary if it costs you by requiring an insurance policy against fraud or requires a minimum balance that is too high.
  • Contract or no contract? If you sign a commitment to staying with one company, they will usually lower some of the fees. The downside is that there is a penalty for leaving early or not meeting your obligations. Be careful with contracts until you are confident you can meet all minimums and trust the company to hold up their end.
  • Foreign transactions – since many internet sales are multinational, foreign currency transactions (currency conversion) is an issue here. Offline, it isn’t a worry. Find out who bears the burden of conversion costs and what extra charges or delays you might incur.
  • Data or no data? When accepting credit card transactions online, you have the choice of keeping card information in a database (for repeat customer convenience) or making each transaction unique. The upside is convenience for returning shoppers; the downside is security. Your processor can handle this for you, but it will cost you.
  • Discount, gift and loyalty cards. Many businesses add additional types of “plastic” to attract customers. Your service provider will generally handle these as well – for a fee.


Choosing the best merchant services company for your business is a matter of understanding the typical charges and selecting from a range of services. Take those services that fit your business and look for a fee schedule that minimizes costs for how you will be making credit card sales.

A large portion of your search will be based on fees, but customer service is paramount so you want to go with a provider that has a great reputation in this area. Fees should be one component that you assess, but it is without a doubt not the only consideration when deciding on merchant solutions that work for your business,   You can have the lowest fees in the world, but that is useless when you run into a problem with a customer at your counter and you can’t get a hold of your provider. In situations like this you could very easily lose a sale, which will more than off-set the savings of lower fees.

If you don’t get the best deal right out of the gate, remember that you should reevaluate in six-months to a year anyhow. Having a good track record will work in your favor and give you leverage to negotiate lower fees. Also, with the experience, you will know more about what services you actually use and some you wish you had.