What are Merchant Services?

Merchant services is a broad term that is used to define a wide range of payment processing options. Most automatically associate merchant services with debit and credit card processing, but there is a wide variety of other options encompassed in its broader definition.

Merchant Services

Merchant services are the generic name given worldwide to a broad category of financial services intended for use by businesses. In its most specific use, it usually refers to the service that enables a business to accept a bank card transaction payment through some secure (encrypted) channel by use of the customer's credit card or debit card or NFC/RFID-enabled device. However, the term can include all of the following in its use:

  • Credit and debit cards payment processing: the most common type of merchant services, they allow the merchants to accept bank cards as a form of payment
  • Check guarantee and check conversion services: these service allow the merchants to accept checks with reduced liability against fraud
  • Automated Clearing House (ACH) check drafting and payment services: this service allows the merchants to cash the checks tendered as payment immediately through the ACH process and get the fund verified and transferred quickly
  • Gift card and loyalty programs: as the name suggests, these services allow merchants to offer gift card or loyalty services without having to handle in house
  • Payment gateway services: these services provide payment gateways for merchants with heavy transaction volumes
  • Merchant cash advance services: these services provide merchants with the ability to offer cash advance options to their customers
  • Online transaction processing: these services allow merchant to process payment online without the need for a physical POS system setup
  • Point of sale (POS) systems: As the name suggests, this is a service that allows the merchant to set up a POS system to accept physical bank cards
  • Electronic benefits transfer programs, such as food stamps: these allows certain merchants that qualify to accept these forms of government-issue funds (such as supermarkets, etc.)

Merchant services typically require the setup of a merchant account with a payment acquirer either directly or through an ISO (Independent Sales Organisation) or Referral Partner (RP).

The exception to this is mPOS systems, which are mobile pin entry devices (PED) typically connect to a mobile phone through Bluetooth and then use the phone's WiFi or mobile data to connect with the banks. This system doesn't require a merchant account although the companies that offer this type of service will still have a relationship with an acquirer. Payments made through this method cost a lot more per transaction so are ideal for businesses that don't put through many card transactions.