How to Choose a Merchant Service Provider

How to Choose a Merchant Service Provider

A merchant service provider securely processes transactions for individual companies, and as credit and debit cards become the most prominent form of payment, businesses would do well to consider providers carefully. While the ability to swipe a card is convenient for the customer, it can become costly if you haven’t spent time researching exactly what you’re paying for. Just as you wouldn’t write a check to your mechanic without knowing exactly what is being repaired, you shouldn’t be paying a merchant service provider without knowing exactly what you’re being charged for.

Most companies use a merchant service provider, and it can become easy to pay the bill without looking at what each line item is. The fees that regularly accumulate are what make any merchant service provider costly. Your company needs to assess what fees are worth the money you’re being charged, and be aware of how the bottom-line bill you receive each month breaks down.

Whether you’re looking for a merchant service provider for the first time, looking to switch, or simply want to know more about the possibilities, your company can benefit by spending some time evaluating the options.

It is also important that you ask about all fees that you will incur from the beginning to the end, mainly the ones that the merchant service provider doesn’t advertise on their website. Merchant service provider operations will often advertise only the least expensive fees without telling you how other fees will be accumulating on your monthly statement.

Here are some other important questions to ask:

1.     What does it cost to start or close an account?

Ask about the set-up process. Is there a one-time fee up front that will you save money down the road, or is it simply unnecessary to pay for a set-up that other companies do for free? Does paying a set-up fee provide a service that is convenient or necessary? You might ask the company you’re speaking with why they charge a set-up fee; ask what the fee covers.

Also ask if there are cancellation fees. Take a look at the contract—what does it say about appropriate circumstances to end your contract without paying extra? Figure out how your company will go about renewing or changing the contract if your needs change. If the company does have a cancellation fee, ask if they will waive it on request.

 2.     What costs will you regularly incur?

There are three basic costs that almost any merchant service provider will charge you for.

The first is a virtual terminal, which is the overall cost per month to have access to the service. All purchases will go through this virtual terminal, regardless of how you (the vendor) are paid.

The second is a transaction fee, which is a flat rate charged each time that a transaction is processed. (This fee is usually between $0.15 and $0.30 per credit card charged.) Consider what percentage of your overall profit is being absorbed by this charge. Depending on how much you bring in on an average sale, you might be losing a substantial portion of your profit through a transaction fee.

Still remember to compare costs overall though—don’t assume that the least cost is always best; if the merchant service provider offers a low cost transaction fee, are you losing the same money elsewhere to another fee?

Take a look at some of these companies’ various charges, for example:

Company Monthly fee for virtual terminal Transaction fee
BluePay $15.00 $0.20
CDG Commerce $15.00 $0.30
Dwolla N/A $0.25
First Data Merchant Service $12.00 $0.24
Intuit $19.95 $0.29
PayPal $30.00  $0.30

Another cost to be aware of is the credit card usage fee. This fee is a percentage of the total amount charged to a patron’s card.  Some companies charge one flat usage rate for all cards; some categorize the charges based on the type of card patrons use. Also, some merchant service providers charge a separate usage fee specifically for American Express cards, which is usually higher than the fee of other credit card companies.

It is very important to ask your merchant company how they break down their usage fees for each type of credit card below. This way you will know if the smallest charge fee that they advertise on their website will be close to the one that you will incur on your average bill every month.

Type of card Who has it Effect Examples how the fees may vary
Non-qualified cards Usually business and government cards Vendor usually incurs a higher usage percentage cost 3.19% – 3.50%
Medium-qualified cards Most common—credit card owners receive benefits through their credit card company (such as the reward cards, cash back, etc.) Sometimes, providers include this type of card in the non-qualified category above. However, most credit cards are medium-qualified, so be sure to clarify with your provider so you know if there are higher costs associated this type of card. 2.09% – 2.44%
Qualified cards No rewards are offered to credit card owners Lowest cost to vendor 0.89% – 1.99%
International Not a common distinction with most services Some charge extra to process an international sale 1% – 3.5%

So how do you go about picking the right merchant service from here? Be thoughtful and take the time to ask questions, even if you think you already know the answer.

Also, read as many online reviews as you can about the merchant company in which you are interested. Go to the Better Business Bureau website to learn how many complaints companies have and how they respond to each of them. If a company has many documented complaints, we highly recommend using another provider. Your provider will have direct access to your bank information and account, so it is critical to pay attention to valid complaints and choose a merchant service provider with a positive, established reputation.

Finally, re-assess your company’s needs on a regular basis. Ask questions like the ones listed above. Consider if you have more international or local business than the last time you assessed service providers. Do you process more or fewer transactions now? What type of credit card are you most often processing? Let the answers influence which merchant service provider you choose.