What are the Different Types of Merchant Services?

John Lister
John Lister
Businesswoman talking on a mobile phone
Businesswoman talking on a mobile phone

Merchant services are a range of tools which can be used by small businesses to make it easier to sell goods through new channels. Today the term most commonly refers to the ability to accept online payments. Merchant services can also include card processing in a physical store, or even services which don't relate to accepting payments, such as loans.

In many, if not most cases, a firm offering "merchant services" will be using the term to refer to card payments online. Many small businesses do not have the capacity to accept credit cards as payment, which can be a severe handicap when selling online, particularly to customers in other countries. The cost of opening a card account to accept and process payments can outweigh the money a firm would make from the payments. It can also leave the company open to liability if the customer's card details are either lost or used fraudulently. Handling card payments also means the customer needs to trust the company, and the company needs to trust any employees who have access to the details.

A firm offering merchant services will be able to act as a third party intermediary. This means it processes the card payment and passes on the money to the retailer, minus a fee. The retailer therefore never has any access to the card details. Usually the merchant firm will be a well-recognized and established organization, often a bank, and thus gives the customer more confidence about paying online.

Merchant services can also apply to offline payments. This will usually take the form of the retailer having a card processing machine which is linked wirelessly to a phone connection to the bank itself. Some systems also allow a firm to offer a cashback facility, by which they give cash to the customer, which is added to their purchase amount. This facility is useful for the customer but can also be useful for the retailer as it cuts down on the amount of cash they have in their tills at any time, reducing security risks.

Some firms are now offering new card payment features. A popular example is the contactless payment system by which the customer can simply wave a card over a machine to make a payment without needing to wait for it to be authorized or to type in a PIN, thus saving time. For security reasons these payments are normally limited to small amounts.

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