Credit Card Processing

How to Choose a Merchant Service Provider

A man wearing a brown suit figuring out how to choose a merchant service provider

As an entrepreneur or business owner, choosing the right merchant services provider (MSP) is an integral piece of the puzzle when building your business. A merchant service provider supplies you with the technology to accept payments from your customers. They can supply you with a merchant account, enable you to issue gift cards, and so much more.

However, with many MSP options available in today’s market, selecting the best provider can feel daunting. In this article, we will discuss the most important factors and questions to ask when choosing a merchant service provider.

What to Consider When Choosing a Merchant Service Provider

As we touched on, there are many factors to consider when choosing the right merchant service provider for your business. You have to consider both your business’s needs and the MSP’s capabilities to meet those needs. Below, we’ll guide you through this process, highlighting the top eight things you should consider when making this crucial decision. 

1. Hardware and Software Capabilities

When selecting an MSP, it’s essential to evaluate its hardware and software capabilities. To briefly clarify, if you’re unfamiliar, hardware includes all physical equipment you may need, while software encompasses the digital programs and connections working behind the scenes.

To choose the right hardware and/or software, first, consider your business setup and location. Have answers to questions like: 

  • Is it a brick-and-mortar establishment or an eCommerce business? 
  • If it’s at a physical location, where will you have customers check out? 
  • Do you need wireless capabilities to accept payments anywhere in the building?
  • Will you ever want to accept payments at trade shows, farmers’ markets, pop-up locations, or festivals? 
  • Do you need inventory management or appointment booking capabilities?
  • Do you have a website that should sync with this information (like appointment bookings or inventory/stock levels)?

Once you’ve outlined your business’s payment needs, it will be easier to decide on hardware or software. Or, at the very least, you’ll be better equipped to communicate your needs so the MSP can help you evaluate the available options. 

Next, verify if they offer what you need through proprietary or integrated point-of-sale (POS) systems, mobile payment solutions, or payment gateways.

Finally, if you already have systems in place, assess the MSP’s compatibility with your existing hardware and software infrastructure. Opting for an MSP that offers seamless integration with your current systems can save you time and money.

2. Payment Security Features

Payment security is one of the most important aspects to consider when choosing your merchant service provider. A reputable MSP should prioritize the protection of sensitive customer information

As a baseline, first look for providers who comply with the Payment Card Industry Data Security Standard (PCI DSS) and provide encryption and tokenization technologies to safeguard payment data.[1]Payment Card Industry Data Security Standards. “PCI DSS v3.2.1 Quick Reference Guide”. Accessed on August 2, 2023. Additionally, inquire about fraud prevention measures, such as real-time transaction monitoring and chargeback management systems. A robust security framework will not only protect your customers but also enhance your business’s reputation.

3. Strong Customer Support

Reliable customer support is crucial for handling payment-related issues. It’s wise to evaluate the quality and availability of customer support for each MSP you’re considering offers from. Determine their support channels, such as phone, email, or live chat, and assess their response times. A responsive and knowledgeable support team can assist you in promptly resolving technical glitches or transaction discrepancies, minimizing disruptions to your business operations.

Remember, a non-responsive MSP can cost you time, reputation, and money in lost sales, so it’s wise to give your potential merchant services provider a trial run (e.g., call them to see if you can quickly reach a representative) before making your decision.

4. Industry-Specific Experience

Different industries have varying payment processing requirements. Choosing an MSP with experience in your specific industry can be beneficial. They will likely have a deeper understanding of your business’s needs and challenges, thus allowing them to offer tailored solutions. Additionally, an experienced MSP may already have established relationships with banks, which can facilitate smoother payment processing.

5. Transparent Pricing

A man at a desk on his laptop comparing merchant account pricing options with financial charts and calendars surrounding him

Naturally, pricing is a crucial factor when selecting an MSP for your business. When they present their pricing to you, ensure you understand the processing fee structure and that it aligns with your business’s budget and payment volume. 

Ideally, look for providers that offer transparent pricing models, clearly stating all costs involved, including setup fees, transaction fees, monthly fees, annual fees, and any additional charges. Avoid providers with intentionally confusing fee structures or hidden costs, as they can significantly impact your profitability in the long run.

Some of the most popular payment structures include:

Interchange-Plus

It might be confusing to understand, but it’s usually the cheapest pricing structure. With interchange, the important thing to know is that the MSP is passing their costs to you directly with a disclosed markup. As such, this is also the most transparent pricing structure.

Here’s an example to illustrate this model:

Let’s say you process a $100 transaction. The interchange fee set by the credit card network is 1.5% + $0.10. Your MSP’s markup is 0.3% + $0.20.

So, the cost of the transaction would be:

  • Interchange Fee: 1.5% of $100 + $0.10 = $1.60
  • MSP’s Markup: 0.3% of $100 + $0.20 = $0.50
  • Total: $1.60 (Interchange fee) + $0.50 (MSP’s markup) = $2.10

Therefore, for a $100 transaction, you would be charged $2.10, and you would receive $97.90.

With the interchange-plus model, you can see exactly what portion of the fees is going to the card-issuing bank (the interchange fee) and what portion is going to your MSP (the markup), providing full transparency into your credit card processing costs.

Flat Rate

While not the cheapest, it’s the easiest to calculate and simplest to understand. If you need a consistent amount of calculable fees, a flat rate is a great choice to help you prepare and budget for your fees.

For example, an MSP might offer a flat rate of 2.75% per transaction. This means that for every transaction, regardless of the card type (whether a debit card, credit card, rewards card, etc.), you’ll pay 2.75% of the transaction value.

So, if you have a $100 transaction:

  • Flat Rate Fee: 2.75% of $100 = $2.75

Therefore, for a $100 transaction, you would be charged $2.75, and you would receive $97.25.

The primary advantage of this model is its simplicity and predictability. It’s easy to understand and calculate, and you’ll always know exactly what you’ll be charged for each transaction.

6. Flexibility & Reliability

As your business grows and evolves, your payment processing needs may change. It is important to choose an MSP that offers flexibility and scalability. Consider providers that allow you to easily upgrade or downgrade your services based on your changing requirements. Additionally, assess their system’s reliability and uptime. Downtime can lead to lost sales and disgruntled customers, so choose an MSP with a proven track record of high system availability.

7. Simple Contracts

Review the terms and conditions of your contract carefully before committing to an MSP. Ensure that the contract is fair, easy to understand, and does not include any hidden clauses or long-term commitments that could hinder your business’s flexibility. Ideally, opt for a provider that offers flexible contract options, such as month-to-month agreements, enabling you to switch providers if necessary without incurring hefty penalties.

8. Integrations

Finally, it’s important to consider the integrations offered by the MSP. Depending on your business’s needs and existing infrastructure, you may require integration with other systems, such as your accounting software, customer relationship management (CRM) tools, or eCommerce platforms. Verify the MSP has pre-built integrations or APIs that allow seamless data flow between systems. Efficient integrations can streamline your business processes and enhance overall efficiency, reducing risks and costs associated with human errors in manual processing.

Questions to Ask a Merchant Account Provider When Researching Your Options

So far, we’ve laid out the major considerations above, but it’s also important and helpful to know the right questions to ask the MSP you are considering. Asking detailed questions about your potential business relationship will help you discern between seemingly equivalent providers.

Below, we highlight some of the most common questions that should be asked to ensure the merchant service provider can meet and handle your business needs and expectations. Remember, your MSP controls your cash flow, so setting high expectations can save you a lot of time and frustration down the line.

A bag of transaction funds

How do they batch transactions?

Batching a transaction refers to the process of grouping multiple individual transactions together for processing and settlement. Instead of processing each transaction individually, businesses often accumulate a batch of transactions throughout the day, typically until a specified cutoff time. Once the batch is complete, the merchant service provider consolidates and submits the batch for processing.

Batching allows for more efficient and streamlined payment processing, reducing costs and simplifying reconciliation. It also enables the timely settlement of funds to the merchant’s account, ensuring smoother cash flow management. Understanding how the provider batches transactions is essential for cash flow management. Ask about their cutoff times for daily batch settlements to ensure funds get deposited into your account in a timely manner.

A calendar with 31 on it

How long until funds are settled?

Now that you know how transactions get sent off to the bank for processing, it’s time to ask about how the funds come back to you and deposit into your account. This process is called settlement. Ask your potential MSP what settlement time frame you should expect for funds processed through the MSP. Some providers settle funds within one to two business days, while others may take longer. Prompt settlement is crucial for maintaining healthy cash flow.

A hand holding a bag of transaction funds

Is there a chance of them holding your funds?

Inquire about any instances where the merchant service provider may hold your funds. Some providers may implement reserve or holdback policies, especially for businesses with higher chargeback risks or irregular transaction patterns. Understanding these policies can help you properly assess the impact on your business’s cash flow.

A revenue chart with blue and yellow lines of payment processing volume

What are the processing limits?

Find out if the MSP imposes any processing limits, especially if your business experiences high or varying transaction volumes (for example, during seasonal periods). Ensure that the provider can handle your peak transaction volumes without interruptions or penalties.

A laptop open to an interface

How long would it take to replace hardware?

It’s important to inquire about an MSPs hardware replacement policy and the expected turnaround time for a replacement. Hardware failures can occur unexpectedly and can significantly disrupt your business operations, leading to potential loss of sales and customer dissatisfaction. By understanding the MSP’s support and replacement processes, you can gauge their responsiveness and commitment to minimizing downtime.

A businessman with a magnifying glass next to him

How long has the provider been in business?

Consider the provider’s experience and stability in the industry. An MSP with a proven track record and a significant tenure shows reliability and trustworthiness. However, newer providers may offer innovative solutions or competitive pricing, so evaluate their offerings carefully.

Closing Remarks on Choosing a Merchant Service Provider

Take the time to research and compare different MSPs, read customer reviews, and reach out to their support teams to clarify any doubts. Remember, choosing a reliable and efficient MSP can streamline your credit card processing, enhance customer experience, and contribute to the overall success of your business.

A businessman using a magnifying glass to assess a pricing model while searching for a merchant services provider

Choose a dependable merchant service provider who gets you the best rate!

Article Sources

  1. Payment Card Industry Data Security Standards. “PCI DSS v3.2.1 Quick Reference Guide”. Accessed on August 2, 2023.


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