In today’s competitive marketplace, it’s important for many businesses to accept and process electronic payments. Businesses will typically need to set up internal operations to support electronic payments and work with third-party providers to build their payments infrastructure. They also need to consider how to power this infrastructure, create the customer experience, mobilize data to make it available for analysis, and track performance. It’s a lot of work, but it will directly impact long-term business success.
Merchant services providers play an important role in helping businesses set up electronic payments. Here’s an overview of what merchant services providers are and what they do for businesses.
What’s in this article?
- What are merchant services?
- What is a merchant services provider?
- Types of merchant services providers
- How to choose a merchant services provider
- Merchant services providers vs. merchant account providers
- What does it cost to work with a merchant services provider?
- Benefits of working with a merchant services provider
- How Stripe Payments can help
What are merchant services?
Merchant services are a broad range of financial services and tools that businesses need to accept and process customer payments, typically from credit cards, debit cards, or other electronic payment methods.
What is a merchant services provider?
Merchant services are provided by merchant service providers (MSPs) or payment processing companies, which act as intermediaries between businesses, customers, and financial institutions such as banks and credit card networks.
An MSP is a company that helps businesses accept and process payments from customers using credit cards, debit cards, or other electronic methods. They make sure the payment process is easy and secure, for both the business and the customer. They also offer additional tools and services, such as setting up payment systems for physical stores and online shops, keeping businesses compliant with payment security rules, and providing support when needed.
Key components of merchant services include:
Payment processing: MSPs facilitate the authorization, capture, and settlement of transactions when customers pay using credit cards, debit cards, or other electronic payment methods.
Point of sale (POS) systems: POS systems are the hardware and software systems businesses use to accept and process payments at the physical location where the sale takes place. They range from simple card readers to advanced setups with integrated inventory management and customer relationship management features.
Payment gateways: Payment gateways are the online equivalents of POS systems, allowing businesses to accept and process payments through their websites or mobile apps. They securely transmit transaction data between the customer's browser, the business’s website, and the payment processor.
Merchant accounts: Merchant accounts are specialized bank accounts that hold funds from card payments before they are transferred to the business's regular bank account. Merchant services providers typically help businesses set up and manage these accounts.
Fraud prevention and security measures: MSPs often provide tools and services to help businesses minimize the risk of fraud and maintain compliance with security standards, such as the Payment Card Industry Data Security Standard (PCI DSS).
Analytics tracking and reporting: Many MSPs offer access to data and reporting tools that can help businesses track sales, customer trends, and other key performance indicators.
Customer support: MSPs usually provide customer service to help businesses resolve issues related to payment processing or other aspects of their accounts.
Types of merchant services providers
There are several types of merchant services providers in the market, each offering different services and catering to various business needs. Some of the common types of MSPs include:
Traditional merchant services providers: These MSPs primarily focus on providing payment processing services for brick-and-mortar businesses. They usually offer POS systems and hardware, such as card readers and terminals, to facilitate in-person transactions.
Payment gateways: These providers specialize in offering online payment processing services for ecommerce businesses. They provide secure payment gateways that enable businesses to accept credit card and other electronic payments through their websites or mobile apps.
Independent sales organizations (ISOs): ISOs are third-party companies that partner with banks or other financial institutions to resell merchant services. They often provide a suite of services, including payment processing, POS systems, and other business tools, by working with multiple processing partners to offer competitive rates and services.
Mobile payment processors: These MSPs focus on providing payment processing solutions for businesses that need to accept payments on the go, such as food trucks, market stalls, or mobile service providers. They typically offer mobile card readers or mobile POS systems that can be used with smartphones or tablets.
All-in-one payments platforms: These providers offer a comprehensive suite of payment processing and business management tools, combining payment processing, POS systems, inventory management, customer relationship management, and other features in a single integrated platform. These solutions are designed to simplify business operations management.
Payment facilitators: Payment facilitators (payfacs), including Stripe, allow businesses to accept payments without setting up their own merchant account. They aggregate multiple businesses under a single master account, which simplifies the onboarding process and reduces some of the associated fees.
High-risk merchant services providers: These MSPs specialize in working with businesses considered high-risk due to the nature of their products, services, or industries. High-risk businesses may face a higher likelihood of chargebacks (disputed transactions) and fraud, and traditional MSPs may be reluctant to work with them. High-risk MSPs offer customized payment processing solutions and risk management tools for these businesses, often at higher fees.
Some comprehensive merchant services providers, like Stripe, offer the functionality of multiple types of MSPs. When choosing a merchant services provider, businesses should carefully consider their specific needs, the type of payment processing they require (in-person, online, or mobile), and the additional services and tools they may need to manage their operations effectively.
How to choose a merchant services provider
Choosing a merchant services provider is no longer just about looking at basic transaction fees or comparing countertop card terminals. Modern payment management has transformed into a software-led decision. Today, your POS and online payment infrastructure act as the central operational system of your business by connecting transactions directly to inventory management, accounting, real-time reporting, and customer engagement platforms.
To select an MSP that aligns with your business model and future goals, follow a structured evaluation framework:
Assess your unique business requirements: Identify your specific payment channels, whether you require entirely online e-commerce processing, in-person physical POS configurations, or a mobile combination. Balance your current sales volume and average transaction sizes to decide which features must be prioritized from a third-party provider.
Prioritize deep software integration: Verify that the provider integrates seamlessly with your existing technology ecosystem, including your e-commerce platform, accounting systems, and customer relationship management (CRM) software. Unified data streams drop administrative error rates and eliminate the need for manual cash reconciliation.
Deconstruct the fee and pricing structures: Compare complete pricing models, accounting for per-transaction interchange rates, monthly account maintenance fees, hardware setup expenses, and potential chargeback penalties. Watch for hidden fees or overly complex tier-based models.
Verify compliance and advanced risk security: Your chosen provider must maintain stringent security standards, such as Payment Card Industry Data Security Standard (PCI DSS) certification, to securely protect customer financial data. Inquire about embedded fraud prevention tools that use machine learning algorithms to dynamically block fraudulent charges before they result in costly chargebacks.
Analyze reporting dashboards: Ensure the platform offers detailed, real-time analytics tracking across all digital and brick-and-mortar sales channels to help you make informed pricing, inventory, and staffing decisions.
Request platforms demos and negotiate contracts: Before committing, request a live environment trial or platform demo to test functionality and user friendliness. When finalizing agreements, clarify terms regarding contract length, early termination penalties, and eventual equipment upgrade pathways.
Recommendations by business size
The ideal payment architecture grows along with your transaction complexity, meaning the right merchant services setup changes significantly depending on the size of your business.
For small and scaling businesses: Prioritize speed and simplicity. Look for an aggregated provider offering instant digital onboarding, transparent pay-as-you-go pricing, and an all-in-one dashboard that unifies payments, storefront, and inventory data to eliminate third-party software overhead.
For midmarket and enterprise businesses: Prioritize control and global scale. Negotiate customized interchange-plus volume pricing, and leverage robust application programming interfaces (APIs) to embed custom checkouts into your stack. Ensure the provider supports international currency routing, regional payment methods, machine-learning fraud defenses, and all-hours technical support backed by strict uptime service level agreements (SLAs).
Merchant services providers vs. merchant account providers
A merchant services provider and a merchant account provider both facilitate electronic payments for businesses, but they have different roles in the process.
A merchant account provider is a financial institution that provides a business with a merchant account, which is a type of bank account that allows a business to accept electronic payments from customers. The merchant account provider sets up the account, provides the necessary hardware or software, and handles the processing of transactions. It also charges a fee for each transaction processed, as well as a monthly fee for maintaining the account.
A merchant services provider is a company that offers a wider range of payments services to businesses, beyond setting up a merchant account. These services may include payment gateway integration, fraud detection and prevention, chargeback management, and customer support. MSPs handle not only the processing of transactions but also other aspects of payment management.
Some merchant services providers, including Stripe, also offer businesses access to merchant account functionality. For this reason, it makes sense for most businesses to wait to open a merchant account until after they choose a merchant services provider. Depending on which provider you choose, you might not need to open a merchant account at all.
What does it cost to work with a merchant services provider?
The cost of working with a merchant services provider varies depending on the provider, the services required, and the specific needs of the business. However, there are several common fees and charges that businesses may encounter when working with an MSP, including:
Setup fees: Some MSPs charge a one-time fee for setting up a merchant account and configuring the necessary payment processing tools.
Monthly fees: Many MSPs charge a fixed monthly fee for maintaining the merchant account, providing customer support, and offering access to reporting and analytics tools.
Transaction fees: For each transaction processed, the MSP typically charges a fee, which can be a flat rate per transaction, a percentage of the transaction amount, or a combination of both. These fees may also include interchange fees (paid to the issuing bank) and assessment fees (paid to the card networks like Visa, Mastercard, etc.).
Terminal or equipment fees: If a business needs to lease or purchase POS terminals, card readers, or other hardware, there may be additional costs associated with that equipment.
Gateway fees: If a business processes payments online, they may incur a separate fee for using a payment gateway.
PCI compliance fees: Some MSPs charge an annual fee to help businesses maintain compliance with PCI DSS and provide related support.
Chargeback fees: In the event of a chargeback, the MSP may charge a fee for handling the dispute process.
Early termination fees: If a business decides to terminate its contract with the MSP before the agreed-upon term is complete, there may be an early termination fee.
The fee structure and amounts can vary significantly between different merchant services providers. Businesses should carefully review and compare the fees and terms offered by different MSPs before committing to a provider. Additionally, some providers may negotiate on certain fees, depending on the business's transaction volume and other factors. Learn more about Stripe’s pricing structure.
Benefits of working with a merchant services provider
Working with a merchant services provider offers numerous benefits for businesses of all sizes. Here are some of the main advantages:
Diverse payment options: Merchant services providers allow businesses to accept a wide range of payment methods, including credit and debit cards, digital wallets, and mobile payments. This flexibility enables businesses to cater to different customer preferences, enhance the overall shopping experience, and potentially boost sales.
Improved cash flow: Merchant services providers ensure prompt payment processing, which can significantly improve a business's cash flow. With faster transaction processing and settlement times, businesses can access their funds more quickly, enabling them to manage finances more efficiently.
Enhanced security: Merchant services providers adhere to strict security standards, such as PCI DSS, to protect sensitive customer data during transactions. Working with a reliable merchant services provider enables businesses to safeguard their customers' information and reduce the risk of fraud and data breaches.
Simplified payment processing: Merchant services providers provide businesses with the tools and software to process payments smoothly, including payment gateways and POS systems. This simplifies payment processing, reduces the chances of human error, and saves time for both customers and businesses.
Access to valuable insights: Merchant services providers often offer reporting and analytics tools that enable businesses to track and analyze payment data. This information can be invaluable for identifying trends, monitoring sales performance, and making informed decisions to grow the business.
Scalability: As businesses grow and expand, merchant services providers can provide the necessary payments infrastructure to facilitate this growth. As a result, businesses can easily scale their payment processing capabilities in line with their changing needs, without investing in additional resources or reinventing their approach to payments.
Technical support: Merchant services providers offer ongoing technical support to ensure that businesses can efficiently handle payment-related issues. This support can help payments process smoothly and minimize downtime caused by payment processing issues.
Cost savings: By outsourcing payment processing to a merchant services provider, businesses can reduce the costs associated with maintaining their own payments infrastructure, such as hardware, software, and personnel expenses. This allows businesses to focus on their core competencies and allocate resources more effectively.
How Stripe Payments can help
Stripe Payments provides a unified, global payments solution that helps any business—from scaling startups to global enterprises—accept payments online, in person, and around the world.
Stripe Payments can help you:
- Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods, and Link, a wallet built by Stripe.
- Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.
- Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalize interactions, reward loyalty, and grow revenue.
- Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.
- Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.
Learn more about how Stripe Payments can power your online and in-person payments, or get started today.
The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.