Choosing a merchant service provider: key factors

A reliable merchant service provider is an integral part of a successful business operation when it comes to the safe transfer of funds between a business and its customers.

Merchant service providers are an important cog in the payment processing system, supporting multiple payment methods and currencies.

Enhanced by advanced technology and AI systems, they ensure that transactions are processed securely and efficiently. Whether operating locally or expanding globally, businesses should choose a provider that aligns with their long-term growth strategy and operational needs.

In this blog, we explore the role of merchant service providers, their benefits, key factors to consider when choosing one, and how they contribute to a secure and optimized payment system.

What is a merchant service provider?

A merchant service provider is a company that facilitates the safe transfer of funds between a business and its customers.

Merchant services allow businesses to accept and process digital payments for the goods and services they offer. These include debit and credit card payments, as well as other electronic payment methods, such as digital wallets and mobile apps.

Merchant service provider vs merchant account provider

While sometimes used interchangeably, these two terms refer to slightly different aspects of the payment processing system.

A merchant account provider is a financial institution that sets up a merchant account for businesses. Whereas, a merchant account is a specific type of bank account that businesses need to receive funds from digital transactions. The merchant account holds funds from transactions until they are transferred to the business bank account. A merchant account provider can be a bank (acquiring bank), or a third-party financial company.

A merchant service provider offers a more comprehensive scope of payment processing services, including fraud prevention, payment gateway integration, chargeback management, and data analysis. End-to-end merchant service providers can also offer merchant accounts as part of their regular payment services.

How do merchant services work?

Merchant services rely on a complex back-end process that allows businesses to accept electronic payments securely and almost immediately.

1. Payment Initiation: The customer chooses their payment method and initiates the transaction. This can be done through mobile apps, like Apple Pay and Google Pay, or in-store point of sale (POS) systems, where the customer swipes, taps, or inserts their card. Online transactions rely directly on payment gateways, where customers enter their payment information.
2. Transmission: The merchant service provider transmits the customer's payment information to the business's bank for processing. The bank then relays the transaction details to the relevant card network (e.g., Visa, Mastercard, American Express). The card network transmits the transaction information to the customer's bank for approval.
3. Verification: The customer's bank verifies the transaction against the customer's account balance and status, as well as analyzing for any potential security risks. The bank may also request two-factor authentication.
4. Approval / Decline: The customer's bank then accepts or declines the transaction and sends back the response to the business's bank.
5. Confirmation: The merchant service provider relays the response to the business’s POS system or online platform. If the transaction is approved, the business completes the sale and initiates shipment. If the transaction is declined, the business may request an alternative payment method from the customer.
6. Transfer of Funds: The specified amount is debited from the customer’s account and deposited into the merchant account, usually within a few business days.

What are examples of a merchant service?

Merchant services include a range of payment solutions such as payment processing, payment gateways, and point of sale (POS) systems.

POS systems are physical or digital platforms where the transaction takes place, such as a retail terminal.

Whereas, payment gateways are interface technology systems that collect and verify cardholders' information from the POS system or online platform. They are responsible for the encryption of cardholders' data and its transmission to the acquiring bank.

Key factors to consider when choosing a merchant service provider

Key factors to consider include seamless integration, payment structures, and reliable technical support.

Integration

To provide operational efficiency, merchant services must integrate seamlessly with a business's website and internal systems. This is particularly important for small businesses and companies with limited technical capacity.

Fees & pricing structure

Merchant services costs can vary depending on different factors, such as transaction volume, complexity of integration, and payment methods supported. Geographical location and the level of fraud protection required can also influence pricing.

Merchant service providers usually charge the following fees:

• Transaction Fees: A percentage of each sale made through the service, usually between 1.5%- 3% per transaction. Transaction fees can also vary depending on the payment method used. For example, card-not-present transactions, such as online payments, can carry higher fees due to their increased susceptibility to fraud.
• Interchange Fees: These fees are set by card networks such as Visa or American Express, and they cover the costs associated with card processing. These may be a fixed amount or a percentage, depending on the card network, the service provider, and the transaction.
• Monthly Fees: Some merchant service providers charge a flat monthly fee to cover account management or offer access to additional services, such as reporting and analytics.
• Merchant Account Related Fees: Merchant service providers that offer merchant accounts may also charge maintenance fees for managing the merchant account.

Companies should conduct their research thoroughly and choose a merchant service provider that fits their budget and business needs. They should also be mindful of hidden fees, such as monthly minimums that some merchant service providers require if the business fails to meet a certain number of transactions.

Payment security

Failure to secure transactions and protect customers' data can lead to financial losses, reputational damage, and legal liabilities. Look at merchant service providers that implement advanced protection measures to protect businesses against these risks and ensure PCI compliance.

Customer base & currencies

The merchant service provider must support the payment methods used by the business customers, whether credit card payments, digital wallets or cryptocurrencies.

For companies that operate globally, merchant services should support multiple currencies and popular local payment methods beyond credit and debit cards.

Technical support

In addition to secure payment processing, a good merchant service provider offers efficient technical support and timely assistance. They give guidance on system integration, updates, and troubleshooting to help businesses maintain smooth and uninterrupted payment operations.

Benefits of working with a merchant service provider

Whether owning a brick-and-mortar or eCommerce store, businesses are provided with many benefits when working with a provider of merchant services.

Accept multiple digital payment methods & currencies

Modern consumers expect seamless, convenient payment options across various channels and currencies. From mobile wallets and contactless payments to cryptocurrencies, QR codes and payment links, businesses must integrate diverse solutions and meet customer demands.

Reliable online merchant services support safe and efficient transactions across these diverse payment methods, enhancing customer satisfaction.

Merchant service providers can also integrate multi-currency support. This helps businesses eliminate barriers to global sales, reduce conversion fees for customers, and enhance the overall payment experience.

Payment security

If not secured properly, electronic transactions, such as credit and debit card payments, can put the customers' sensitive payment information at risk. Good merchant services minimize this risk, ensure PCI compliance, and prevent fraud.

What is PCI compliance?

PCI compliance refers to the Payment Card Industry Data Security Standard. These are a set of security requirements designed to protect cardholder data and payment information against fraud, data breaches, and cyber threats. To meet these standards and enhance payment security, merchant service providers implement various measures such as data encryption, firewalls, and fraud management tools.

• Data Encryption: Whenever cardholder data is transmitted over open networks, it becomes vulnerable to interception. Data encryption encodes the cardholder data, such as credit or debit card numbers. This makes it unreadable to unauthorized third parties without the correct decryption key.
• Implementation of Firewalls: Firewalls are a crucial defence mechanism for internal payment networks. They control incoming and outgoing network traffic and shield sensitive information from untrusted external sources.
• Regular Vulnerability Assessments: As cyber threats become more sophisticated, merchant service providers conduct regular testing of security systems to identify and prevent emerging vulnerabilities.
• Tokenization: Tokenization is often used in data storage systems for cardholders' information. It replaces card details with unique tokens, preventing exposure to real information and reducing the risk of data breaches.
• Fraud Management Tools: Often powered by AI, these tools monitor transaction patterns in real-time and identify suspicious activities. This could involve anything from stolen credit cards to identity theft or money laundering. They also incorporate chargeback prevention and multi-layer authentication to enhance security and protect businesses and customers from financial losses.

Payment processing optimization

Working with a merchant service provider optimizes the payment processing system and ensures seamless integration with existing platforms, such as payment gateways and credit card terminals.

A well-structured payment system enhances transaction speed, reduces errors, and improves the overall customer experience. Whether it's a quick tap of a card at a POS system or an easy checkout process on an eCommerce site, merchant services reduce friction, leading to higher conversion rates and repeat business.

Revenue growth & business expansion

Many merchant service providers embody data analysis and reporting tools. These tools allow businesses to track their customers' payment preferences and analyze sales trends. eCommerce platforms can adapt their marketing strategies and optimize the customer's online and offline shopping experience.

Merchant services also allow businesses to accept payments from customers worldwide and expand their market. With the ability to both process payments in multiple currencies and handle international transactions, businesses can easily scale and tap into global markets, offering services or products to a wider audience without geographical limitations.

Improved cash flow

Great merchant services facilitate seamless and fast digital payments. Payments can be made on the internet, face-to-face, or even on the telephone.

Merchant services speed up the payment process by ensuring that funds from transactions are deposited into the merchant’s account quickly, often within one to three business days. This reduces cash flow delays associated with manual payment methods such as checks and helps businesses manage their finances more efficiently.

Streamlined business operations

By handling the technical aspects of payment processing, merchant service providers reduce the complexity for businesses, allowing them to focus on growing and optimizing their core operations.

This is why Nuvei is one of the main options...

Nuvei provides bleeding-edge payment solutions that can be tailored to the needs of each business. We offer scalable payment solutions for businesses of all sizes, from startups to large enterprises, eCommerce sites and retail stores.

With seamless integration into existing systems, our platform supports regional and global transactions, enabling businesses to expand their reach and cater to diverse customer preferences.

With payment processing technology that supports multiple payment methods, including credit and debit cards, cryptocurrencies, digital wallets and mobile apps, as well as more than 500 alternative payment methods across 150+ currencies.

We offer competitive pricing and processing fees, and 24/7 technical and advanced security tools, enabling businesses to enhance customer satisfaction and drive revenue growth. Find out more about why we are the leading merchant services provider.

Conclusion

Partnering with a reliable and innovative provider is the key to customer satisfaction and revenue growth.

Merchant service providers allow businesses to process electronic payments securely and efficiently. By offering a wide range of services, these providers optimize transactions and improve operational efficiency. Whether a business operates in a physical store, online, or across multiple channels, choosing the right merchant service provider is crucial to seamless payment acceptance.

By supporting multiple currencies and diverse payment methods, merchant service providers help businesses tap into global markets and maintain a user-friendly customer experience.

Beyond transaction processing, a strong merchant service provider enhances security through PCI compliance, data encryption, and fraud management tools, protecting both businesses and customers from potential cyber threats.