Merchant Services: Everything Retailers Need To Know (2024) - Shopify (2024)

Consumers want to have freedom and control when choosing how to pay for your products.

Globally, non-cash transactions are growing at a rate of 16.6% year-over-year. A 2023 report that analyzed 40 markets found that credit card transactions are on the rise, and that digital wallets like Alipay and Apple Pay account for around $18 trillion in consumer spend, a 49% share globally.

Cash is still a relevant payment method, but it’s on the decline, while flexible options like buy now, pay later (BNPL) keep growing and evolving. The global payment processing market size is responding—it’s projected to grow 9.9% to nearly $232 billion by 2032.

For your online business, this is what makes merchant services crucial. It’s how you can give your customers freedom, flexibility, and control with payments, whatever you sell and wherever your customers are.

This is your guide to merchant services with details on how it works, how much it costs, the steps to choosing the best provider for you, and a list of merchant services providers.

What is merchant services?

Merchant services is a set of tools companies use to accept credit cards, debit cards, and other electronic payments. It’s an essential setup for any business that wants to offer payment methods beyond cash—ecommerce businesses and brick-and-mortar stores included.

With merchant services, you can process payments from credit cards and debit cards, contactless payments, ACH payments, mobile payments, store credit, and gift cards.

How merchant services works

A merchant service provider acts as an intermediary between your business, your customer, and a financial institution—your bank. It facilitates a seamless transaction through a secure, and rather complex, process in the back end.

1. Your customer presents their payment method, like entering payment details online or swiping a credit or debit card on your point of sale (POS) terminal.
2. Your merchant services provider sends payment information to your bank.
3. Your bank sends the transaction to your merchant service provider and the card company, like Visa, Mastercard, or American Express.
4. The card company sends the transaction to the issuing bank (customer’s bank) and requests an approval.
5. The customer’s bank either approves the transaction and sends an approval code to the card company, or declines the transaction.
6. The card company sends the approval code to your bank.
7. Your bank sends the approval code to your payment terminal.
8. Your payment terminal confirms the transaction and prints a receipt.
9. The customer’s card or bank account gets charged the amount on the receipt.

All of this happens seamlessly and in only a few moments.

Merchant service costs

There are three main ways your merchant services provider will charge you for processing payments: flat rate, tiered, and interchange plus.

You should also be aware of interchange fees, which are a percentage of each transaction you pay to credit card companies for processing credit or debit card payments. Card companies and banks assume the risk of fraud or payment issues on every transaction, and these fees cover that.

Flat rate

The most straightforward pricing model is flat rate. It’s usually a small percentage of the transaction plus an additional fixed fee.

An example of flat rate pricing is 2.9% + 30¢ per transaction. This structure is simple and predictable, making it easy to plan your expenses based on the number of sales you do in a given time period.

Tiered

A tiered pricing model has different pricing levels based on the level of risk the payment processor takes with each payment type.

For example, one tier can include in-person credit and debit card payments, which are usually deemed the safest and come with the lowest processing rates. The next tier can include international online payments, which come with more risk and result in higher processing fees.

Interchange plus

The interchange plus model means you’re paying the existing interchange fee plus a markup—an additional percentage or fee per transaction.

Unlike the other two pricing models, interchange plus outlines exactly what you’re paying for and uncovers any hidden fees. This can be useful to businesses looking for a provider with the most competitive pricing, but many companies, especially smaller ones, might find this level of detail overwhelming.

Incidental fees

Don’t forget about incidental fees, or additional costs your merchant service provider may charge you. Here are some to keep in mind:

• Account setup fees
• Recurring charges for your merchant account, like an annual or monthly fee
• Minimum processing fee if you don’t meet a specified volume of transactions
• Chargeback fees if a customer disputes the charge and wins
• Payment card industry (PCI) compliance fee
• Statement fees
• Batch fees for settling many transactions at once
• Cancellation or termination fees if you cancel the service before your contract is up
• Non-sufficient funds (NSF) fee when your bank account doesn’t have the funds to cover a transaction

Merchant services provider products and services

The job of your merchant services provider is to collect your customer’s transaction and payment details, receive authorization from the issuing bank, collect the payment, and send it to your bank account.

Here are the types of services and tools many merchant service providers offer:

Payment processing

Payment processors are payment solutions necessary for accepting cash, credit card payments, debit card transactions, mobile wallets, and other forms of electronic payments. This allows you to receive funds into your merchant account.

Payment gateway

Secure payment gateways are the technological platforms that process online payments from your online store. It ensures you can safely process payments with credit and debit cards.

Payment terminal

A physical payment terminal is the brick-and-mortar equivalent of a payment gateway in an online store, like a chip and PIN machine. It’s a piece of hardware where a customer swipes, dips, or taps their card—or taps their NFC- or RFID-enabled mobile device—to make a purchase.

POS system

A point-of-sale system (POS) is a physical, in-store terminal and a back-end software that tracks sales, stock levels, and customer information. It also provides frictionless shopping options for businesses with a physical presence, like buy online, pickup in-store (BOPIS) and browse in-store, buy online.

Mobile payment system

Use your smartphone or tablet as a credit card terminal. It works thanks to a mobile card reader that connects to your device, as well as a mobile app that passes payment information onto your payment processing network.

Shopify’s POS Go is a more powerful version of a mobile payment system with a built-in bar code scanner, secure payments with any payment method, and full integration with the store’s back office.

Virtual terminal

Virtual terminal is software that lets you take in and process payments without the card physically present, like over the phone or on the computer.

Integrations with third-party providers

The best merchant services providers will allow you to customize your payment processes and methods based on your industry and the markets you want to sell on. And sometimes, they do this through third-party integrations.

For example, if you want to offer easy checkout to customers located in the Netherlands who want to pay in euros, you may want a merchant services provider that offers an integration with iDEAL, the Netherlands’ ecommerce payment system.

Loyalty programs and rewards

You can lean on merchant services for loyalty programs and rewards, a feature that lets you automatically and instantly reward repeat buyers. It matches customer purchases with their profile and previous activity.

How to choose a merchant services provider

Now you know what most merchant services providers offer, and the pricing structures they might use. Here are some key points to keep in mind as you research different providers:

1. Estimate your company’s needs and requirements

FIrst, establish what you need from a merchant services provider. This includes factors like:

• The payment methods you want to offer: Consider credit and debit cards, ACH payments, gift cards, mobile payments, checks, electronic checks, and custom payments like split payments.
• Your anticipated processing volume: Estimate the number of transactions and sales volume for your business per day, week, or month.
• Integrations with other payment and business tools: List payment providers, shopping cart integrations, accounting software, and other systems you might want to integrate your merchant services solution with.

2. List potential providers

Research merchant services products and offers. As you do, take note of their fees, subscription costs, presence in markets relevant to your business, and integration options.

A great place to start is our list of merchant services providers, below.

3. Look for transparent pricing in each option

Two merchant account providers might offer you the same feature set, but price them in a very different way. Look for any potential upfront costs, processing fees, and pricing structures a potential provider offers.

Flat rate is often the best for a small business; tiered and interchange plus models work better for businesses with higher sales volume. Know exactly what you’re paying for and what your bill is made of—avoid hidden fees and unexpected costs.

On top of that, pay attention to any contracts or timeline commitments your provider may require for certain pricing.

4. Review customer support structure

Offering seamless transactions is essential to your customer happiness—and your cash flow. If the process gets stuck for any reason, you’re not just losing money, but also your customers’ trust and patience.

If there’s an issue with payments, how will your provider handle it? Look at review sites like G2 or Capterra to read reviews from fellow business owners and learn about their direct experience with the provider.

5. Double-check the provider’s compliance

Your provider needs to meet certain security standards to keep your customers’ transactions and payment details safe. The most important ones include PCI compliance (for handling credit and debit card information), and SOC (for privacy, processing integrity, security, availability, and confidentiality).

Find this information on your provider’s security or compliance pages.

6. Take a trial run

Choosing a merchant services provider is a big commitment, and one you shouldn’t make lightly. Look for options like free trials, money-back guarantees, or in-depth product demos before you make your final decision for a merchant services provider that will power your business.

Best merchant services providers for 2024

If you’re looking for a merchant services provider, here are five leaders in this space for you to consider. The best option will depend on your business type, size, and needs—there’s something on this list for everyone.

1. Shopify

Shopify enables merchants to build an online store and can sell their products anywhere: on their website, in a brick-and-mortar store, in pop-up shops, and across social media channels.

Crucially, Shopify lets you accept credit cards and use dozens of payment solutions to sell to customers globally. Thanks to Shopify Payments, you’ll get access to credit card processing online (and in person, if you need it) and fraud prevention—all transactions automatically go through fraud analysis.

You can also set up local payment methods for customers shopping in specific markets.

And because Shopify is a full point-of-sale system, you also get an integrated back office with inventory management, customer profiles, marketing functions, detailed reports, and omnichannel checkout options. No long-term contracts means you get full flexibility and freedom.

Cost: Monthly store plans start at $24 per month; there are no transaction fees for stores using Shopify Payments, however, there are credit card processing fees that vary depending on the plan you choose. Using third-party payment providers has additional fees of 2%, 1%, or 0.5% for Basic Shopify, Shopify, and Advanced Shopify plans.

2. Helcim

Helcim is a payments solution that lets you accept payments in the store, on the go, and online.

Helcim offers recurring payments, invoicing, international payments, a customer portal, and customer relationship management. Helcim’s card reader, as well as its virtual terminal can be used to take payments on a computer, tablet, or smartphone.

Cost: Five tiers of fees based on monthly processing volume; in-person payments start at 0.15% + 6¢, keyed and online transactions start at 0.15% + 15¢; ACH payments are 0.5% + 25¢; no monthly fees.

3. Square

With Square, you can accept payments in person, as well as online payments, remote payments (like ACH transfer), and over-the-phone payments. Square’s hardware includes a reader for chip cards and contactless cards, a terminal, magnetic stripe reader, iPad point of sale device, and cash register.

Cost: Between 2.6% + 10¢ and 3.5% + 15¢ per transaction, based on whether a transaction is in-person, online, manually entered, or an invoice payment; monthly plans with advanced features available from $29 per month.

4. Stripe

Ecommerce stores can use Stripe to accept online payments in more than 135 currencies, use pre-built payment pages, manage online subscriptions, and issue invoices.

Stripe features an application programming interface (API), which allows it to integrate with payment methods around the world, like Alipay in China or iDEAL in the Netherlands. It is also known for its fraud detection.

Cost: 2.9% + 30¢ per successful card charge; 0.8% per ACH direct debit.

5. Stax

Stax is an all-in-one payment processing platform that enables businesses to take payments in person, over the phone, online, and on mobile, as well as to invoice customers and clients.

The pricing Stax offers caters to growing and large businesses, due to a monthly fee that starts at $99. However, there’s a 0% markup on direct-cost interchange, which makes monthly costs more predictable.

Cost: Plans start at $99 per month.

Find the right merchant services for your business

There are two big advantages of having reliable merchant services in place. One is that your customers always have the payment options and methods they need, which means they can buy from you with ease.

The other one is your peace of mind. Cash flow is more stable because the money hits your account quickly—often within one business day. Payment processing works without your interference, so you have the time and energy to focus on your products, marketing, and customers.

Go with a provider that matches your needs and budget—the effort will be worth it.