No matter the online or retail business, there are different merchant services to be applied for accepting card payments. These services usually are the set of tools and software for managing transactions. This article is about merchant services, their providers, and the distinction between eCommerce and retail needs.
What is SaaS?
SaaS or Software as a Service is a type of business application that is stored and deployed through the cloud, instead of being installed on the local computer or other devices. Simply put, any SaaS lets the merchant access the software with any suitable device by having an account on the cloud. SaaS is essential for merchants who want to process any electronic payment both online and offline.
The usage of the Software as a Service mostly happens via the browser page, so it is quite simple to operate the software for the business owner and personnel. Billing for SaaS is required monthly, as the service is based not on the one-time purchase model, but the subscription. Also utilizing the SaaS does not require IT maintenance in-house, and most of the updates and security checks are provided by the service developer.
Learn more about SaaS businesses in Maxpay’s article: “What is SaaS and why it may be of interest to merchants?“.
Merchant service provider: what does it mean?
A merchant service provider, or in the abbreviation MSP, is basically the financial institution that allows merchants to accept various electronic payments: credit and debit card payments, along with alternative payment methods like Apple Pay or Google Pay. MSPs usually provide businesses with equipment and software for participating in the transaction process. Depending on the business type and platform, a merchant would choose distinct merchant services.
Merchant services can be described as the package of hardware and software tools that enable a business owner to accept payments both in online stores and offline in retail. Merchant services providers can include different merchant services in the offer, such as merchant accounts, payment gateways, credit card terminals, point of sales system, debit and credit card payment processors, virtual terminals, and many more.
Types of merchant services
Merchant account services. The banking system does not allow a merchant to collect the profit from electronic payments directly on a personal or business bank account. For being able to receive the income, a business owner must have a merchant account. This is a special bank account for processing electronic payments. Merchant accounts can be issued by a financial institution for retail and eCommerce purposes. More about merchant accounts and their purpose you can read in here.
Point of sales systems. Point of Sales Systems or POS is a place where a consumer performs the payment for goods or services. POS can be a physical point in a retail store, in this case, POS terminals and networks are utilized to process credit and debit card payments. Point of Sales Systems can also take a form of a virtual sales point such as a computer or mobile electronic tool.
Mobile payment systems. Mobile Payment Systems or mPOS allow using the smartphone or tablet as a credit card terminal. mPOS systems include a mobile card reader which connects to an app on the mobile device, to link with the payment network.
Payment processors. To have the opportunity of accepting electronic payments a merchant should be involved in the system of payment processing. A payment processor is a financial institution that directs the credit and debit card transaction process, along with any other type of electronic payment. A payment processor is a link between the banking institution and the merchant. Basically, the payment processor is responsible for the data exchange from the customer’s card to the merchant’s bank. For understanding payment processing better, follow this link.
Payment gateways. A payment gateway is the software technology that communicates between the merchant’s website and the provider’s payment processing networks. A payment gateway is a tool for facilitating a payment flow, and it enables the merchant to operate with electronic transactions over the internet. The payment gateway sends the transaction data through banks and third-party providers, to verify the security and validity of every purchase. If you would like to dive into the most popular payment gateways, we recommend this article.
Virtual terminals. A virtual terminal is a software application, most commonly enabled through the web. It creates a virtual point of sale when a computer or other device can accept transactions with credit and debit cards or other electronic payment methods, without the need of using the physical card.
Online shopping carts. An online shopping cart is a software that is designed for eCommerce businesses for extending the shopping experience or customizing the features of the selling website.
Types of merchant services providers
Three main financial institutions can offer a set of merchant services. The main distinction comes from which platform the business prefers to perform transactions on, and the size of the commerce itself.
Merchant account providers
Merchant account providers are usually the acquiring banks that provide services for online and offline commerce. They are authorized to open merchant accounts for collecting and processing electronic payments. Besides opening merchant accounts for business owners, acquiring a bank might include in the offer other services like setting up the Point of Sales, payment processing, or virtual terminal.
But frequently merchant account providers are responsible mostly for the merchant accounts opening. For their services acquiring banks normally require high fees, along with a lot of documentation for setting up the merchant agreement.
Payment service providers
The payment service provider or PSP is a good alternative to an acquiring bank, especially for the eCommerce business. They might or might not include in their services the setting up of a merchant account, but on the other hand payment service providers are easier and often way less pricey to work with.
The payment service provider allows operating with electronic payments without setting up a merchant account, protecting the business from the high charges and long-term contracts. Or a PSP can open an online merchant account within the acquiring bank for the business on its behalf, simplifying the whole procedure.
Also, payment service providers have a built-in payment processor and payment gateway that are crucial for accepting payments online. Including these features in the package makes it faster for the merchant to start the business activity.
Payment gateway services
A payment gateway is a web-based technology that enables accepting payments online. The payment gateway is an unavoidable step in the transaction flow, as it passes through payment networks the encrypted data of each purchase.
Having just the payment gateway won’t let the business operate in the field of electronic payments. For the complete profile, there must be a merchant account firstly. But still, the payment gateway is the best solution for the small business that aims to exist only online.
Merchant services for retail
Accepting electronic payments in retail requires a merchant account to collect incomes, the presence of physical devices along with certain software. As the customer must be able to pay in the store, a point of sales system, mobile point of sales system or at least a virtual terminal should be there. Also, there is a need for a payment processor which often comes in the package with the merchant account. Commonly, merchants that are focused on retail only, do partner with acquiring banks.
Merchant services for eCommerce
The eCommerce business owners definitely need a merchant account or at least its substitution that can be offered by the payment service provider. The financial SaaS for online payments is the payment processor and payment gateway. Both create the link between a virtual payment network, the customer’s wallet, and the merchant account. The service of the online shopping cart is an option depending on selling items. Usually, eCommerce businesses partner with payment service providers or payment gateways for a simple procedure and low fees.
Merchant services for retail and eCommerce comparison table
|Point of sales system||necessary||no need|
|Mobile point of sales system||an option||no need|
|Payment gateway||no need||necessary|
|Virtual terminal||an option||no need|
|Online shopping cart||no need||an option|
Retail business and eCommerce strictly depend on merchant accounts when it comes to transaction processing. But in other software solutions and hardware tools, they differ quite a lot. Each business should analyze its needs, target groups, and potential growth in choosing one or another merchant service. And by selecting the set of services, the understanding of the merchant service provider would be more obvious.
Maxpay is the payment gateway service provider that offers opening merchant accounts, fraud prevention, chargeback alert, and other features for accepting payments online. If you would like to know more about merchant services, please contact the sales team.