Merchant processing

Merchant services encompass a diverse range of financial solutions designed for use by businesses. At its core, the term often refers to merchant processing services that facilitate secure transaction payments. These services enable businesses to accept payments through various channels, including credit cards, debit cards, and NFC/RFID-enabled devices.

Components of Merchant Services

Merchant services include a wide array of offerings:

• Credit and debit card payment processing
• Check guarantee and check conversion services
• Automated Clearing House (ACH) check drafting and payment services
• Gift card and loyalty programs
• Payment gateways
• Merchant cash advances
• Online transaction processing
• Point of sale (POS) systems
• Electronic benefit transfer programs, e.g., food stamps

Role of Merchant Service Providers

Merchant service providers act as intermediaries between banks, businesses, and individuals. Their role involves facilitating electronic payment acceptance for transactions. These providers offer the necessary infrastructure for businesses to accept credit cards, debit cards, and other forms of electronic payments.

While not all merchant service providers offer dedicated merchant accounts, they often manage transactions under a shared "blanket account." This account holds funds collected from successful payments, which are then distributed to individual merchants based on their processed amounts.

Consider a retailer selling a product to a customer using a payment card. The merchant service provider facilitates the transfer of funds from the customer to the retailer, a process that can take up to 48 hours for the funds to be credited to the retailer's bank account. Some providers offer cash advance services to expedite fund transfers.

Merchant Account and Transaction Process

Merchant service providers typically require merchants to have a merchant account with them, either directly or through referral partners such as banks or B2B service companies. In the United Kingdom, most banks, excluding Barclays/Barclaycard, offer merchant services by collaborating with merchant service providers. A merchant account is a specialized bank account designed to receive transactions via the merchant payment gateway.

In the case of mobile point of sale (mPOS) systems, mobile pin entry devices (PED) are often linked to mobile phones via Bluetooth. These systems utilize the phone's WiFi or mobile data to connect with banks, eliminating the necessity for a traditional merchant account. However, mPOS service providers still maintain relationships with acquiring banks. Although mPOS payment costs are typically higher, they are suitable for businesses with fewer card transactions. Purchasing the mPOS device usually incurs an additional charge.

Conclusion

Merchant services form a crucial ecosystem that facilitates secure and efficient payment processing for businesses. These services encompass various components, including credit card processing, check services, payment gateways, and more. Merchant service providers play a central role in enabling businesses to accept electronic payments, either through dedicated merchant accounts or shared "blanket accounts," ensuring seamless financial transactions between buyers and sellers.