Merchant Services: Everything You Need to Know


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Despite the arrival of mobile payments, consumers still favor using credit and debit cards to make payments both in-store and online. This has been confirmed by the most recent Federal Reserve Payments Study (FRPS) released in December 2019. Total card payments grew to $131 billion with a value of $7.08 trillion in 2018 up $29.7 billion and $1.56 trillion since 2015. This means that card payments have grown at an accelerated rate of 8.9% per year by number and 8.6% by value from 2015 to 2018. The rate has steadily increased when you compare to the figures from the previous report which saw growth rates of 6.8% and 5.9% respectively.

With the introduction of newer technologies within the card payment industry, the value of remote general-purpose card payments nearly equalled that of in-person payments in 2018. This is in contrast to the expectations from the 2016 report which predicted that the market would drop to 46% by 2019. The only decline with card transactions within the payments industry is the number of ATM transactions made, however, the value of the cash withdrawn has continued to grow. This shows signs that the cashless society is no longer a thought of the future but rather a reality of the present.

Merchant Services - illustration showing growth of retail debit card payments by 8.7 annually and credit card payments at a rate of 8.9% annually.

This detailed guide will help you understand exactly what is meant by ‘merchant services,’ why the figures above are important to your business, and why you should be diligent on keeping up to date with industry statistics as they fluctuate year on year.


In short, merchant services allow your business to accept card payments from your customers. This is otherwise known as credit card payment processing. Our CardPointe platform was built to address all of your payment processing needs.

When a customer makes a payment for goods or services, this transaction undergoes a chain of 10 approval steps so the payment can be accepted:

  1. 1. The customer's credit card information is sent to the merchant's acquiring bank
  2. 2. This is then sent to a payment processor
  3. 3. The card association (MasterCard, Visa, Discover, AMEX) sends the information to the issuing bank (where the credit card was issued)
  4. 4. The transaction will be either approved or denied
  5. 5. The issuing bank sends a code to the credit card association
  6. 6. This code is then forwarded to the merchant's acquiring bank
  7. 7. The code is then sent one final time to the merchant's payment terminal
  8. 8. Transaction completed
  9. 9. The merchant's terminal will print a receipt
  10. 10. The customer then pays their credit card bill at the end of the billing period

Merchant Services - clothing retailer behind counter receiving credit card from customer.


A merchant account is where transaction money “sits” until it reaches your business bank account. It is the “middle man” between all the different parts of the card payment process and therefore allows money to be securely transferred from your customers’ payment card and cleared into your bank account.

This is not a typical bank account for merchants because you are unable to access anything directly. If you are planning on accepting credit or debit card payments, a merchant account is a necessity.


  • - Unlike a normal bank account, this is a holding account for transaction money during the processing of payments
  • - The merchant account works directly with card networks, card processors and card issuers to clear transactions in your bank account
  • - Merchant accounts are provided by acquiring banks
  • - You sign a contract which covers different costs such as card processing fees
  • - The account comes with a unique merchant ID for your business
  • - You receive an extra layer of security to your card payments


1. Decide how you want to accept credit card payments

Different businesses have different needs. Before doing anything, decide how you want to accept payments for your business. The most common ways in which merchants accept credit card payments are online, by phone, by mail or in person.

2. Search for the right account for you

The most common ways to open a merchant account are either via your bank, through an independent sales organization (ISO) or a member service provider (MSP).

3. Do your research

Evaluate different providers by understanding their fees (explained in the next section), their customer support solution, their security and the overall offering of the account.

4. Apply for the account that suits your needs

This process can be similar to opening a business bank account. Don’t worry if you are a new business as a low volume of sales can be seen as ‘low risk’ by the merchant account provider. The information during the application process is standard when applying for most financial products - business name, address, financial information, banking information etc.

5. Review the terms and sign the contract

Once you’ve been accepted by the merchant, they will draft up a contract for you to sign which will detail all of the terms and conditions. Read through each section and ensure you are happy going forward. If you are not happy, contact the provider and discuss alternative options.


It is important to understand the various types of fees when considering a merchant account. Typically these fees are determined by the way your business operates; the size of your company, credit score, potential risk factors and whether you have a history with any other merchant services. Businesses can expect to pay transaction fees which are calculated by the actual transaction amount and a flat fee (this can vary depending on your merchant services provider), minimum fees which are applied monthly, and gateway fees which are only charged if the merchant services provider uses a third party payment processor.

What Are the Types of Merchant Account Fees?

  1. 1. Application/Setup Fee: This is usually an upfront, one-time payment that covers the costs for setting up your merchant account.
  2. 2. Transaction Fee: A transaction fee is charged for each individual transaction, whether it is approved or declined. The fee is determined by how the payment is made (swiped, dipped, PIN, etc).
  3. 3. Address Verification Service Fee (AVS): AVS is a recommendation for transaction when the card is not present physically. This is a security feature to ensure the address matches the cardholder.
  4. 4. Daily Batch Fee: This is a fee that is charged when you resolve your daily transaction with your credit card processor. You would not be charged this fee if you have not settled any credit card transactions that day.
  5. 5. Monthly Service/Support Fee: In general, credit card processors charge a monthly fee. This will remain a set amount regardless of how many transaction have been processed. The costs cover elements such as customer support and administration that you may require.
  6. 6. Internet Gateway Fee: If you accept payments online, this fee is billed by the gateway provider. In some cases, this could also include an additional charge for each transaction on top of the transaction fees billed by your merchant account provider.
  7. 7. Monthly Minimum Fee: In your contract when setting up your merchant account, there will usually be a condition that you must meet a minimum number of transactions per month. If you fail to achieve this, you will be charged a monthly minimum fee.
  8. 8. Reprogramming Fee: If you need to reprogram your existing equipment or software, you will be charged a fee to cover the time and effort by your processor and your vendor to complete this process.
  9. 9. Chargeback Fee: A chargeback fee (also known as retrieval) is applied when a cardholder or the issuing bank disputes a payment. You will be given an opportunity to address this issue but there will be a fee from your merchant account provider as they act as a mediator in this situation.
  10. 10. Annual Fee: Similar to the monthly service fee, an annual fee covers the same costs but they are charged on a yearly basis instead.
  11. 11. Cross Border Fee: This fee is applied if you accept a payment from a different country to the one that you are based in. This fee applies to all international payments.
  12. 12. Termination Fee: The termination/cancellation fee will be written in your contractual agreement. When you terminate your agreement, this fee will be applied and would usually be a fixed dollar amount. The contract usually provides the answers should you be unsure on how and why this fee is calculated.


Understanding the importance of interchange fees, what they mean, and how they relate to your business is crucial for businesses considering a merchant account. Also known as interchange rates or pricing, these fees are charged to the merchant by a credit card processor (such as CardConnect), and must be paid in order for the merchant to accept credit card payments. These rates are set by the card associations and the card-issuing banks.

Interchange fees are determined by the type of merchant you are, how big or small your company is and how your company accepts payments.

To find out more about interchange rates and pricing, click here to listen to a podcast from Angelo Grecco, our Chief Business Development Officer, and George Peabody from Glenbrooks’ Payments on Fire, who discuss at length the importance of interchange fees.


There are hundreds of interchange cost structures available, which is where interchange optimization can really help your business find the best rates available to maximize on credit card processing savings. Interchange optimization is based on industry-specific program requirements created by the major card brands (MasterCard, Visa, AMEX), and ensures that your business qualifies for the best interchange rates in every transaction that you process.

Merchant Services - illustration of lines connected to $ signs representing interchange optimization.


The Payment Card Industry (PCI) Security Standards Council enforces a set of standards called the PCI Data Security Standards. These standards make sure that all customer and credit card information is securely handled, lessening the impacts of a data breach.

CardConnect’s devices are protected by CardSecure, which is a combination of point-to-point encryption (P2PE) and our patented tokenization. This ensures that your customers’ payment data is instantly protected at the point of entry, guaranteeing secure transmission for processing. Using patented, intelligent tokenization, CardPointe reduces the challenges they encounter with PCI compliance for all transactions – both card-present and card-not-present. Only P2PE certified vendors like CardConnect can deliver this type of unparalleled level of payment security.

Merchant Services - Illustration of female presenting information on a device with to two male individuals representing secure card payments.



1) Are merchant services right for my business?

Merchant services can really help your business grow and control costs. Engaging a payment processor that uses their own products and technology is more likely to be cost effective. Fraud prevention and data security are as paramount online as they are in-store. Choosing a merchant provider that specializes in eCommerce, for example, will ensure that you can securely accept payments from all major credit cards, as well processing popular virtual payment types, such as Apple Pay.

The best merchant services can transform how your business manages transactions, saving you both time and money, allowing you to focus on other areas of your business.

2) Will I be approved for a merchant account?

This will depend on your type of business, and whether the credit card networks have assigned you any risk factors. You may experience a longer application process, or be required to pay higher fees for transactions with a bigger risk factor. Don’t worry if you are a new business as although payment processors need to understand your finances, low transactions are deemed low risk by many.

3) How much will it cost to have a merchant account?

The cost of accepting credit card payments can vary. It’s important to note what fees will be assessed for your company, which will be laid out in the initial contract. The fees that you are responsible for will include both interchange rates and processing fees. Depending on the payment processor that you choose, there may be room to negotiate a better, or lower rate for your business.

4) How long will it take before I'm up and running?

The setup process is dependent on different variables of a business, like size and card acceptance method. Larger more established businesses that require multiple POS systems in multiple locations, as an example, could experience a more extensive setup.

5) What type of POS do I need?

The type of terminal you need will depend on the type of payment method your business will be accepting. If you are based in a single location, a POS terminal may be the best option, however, if you are on the move, then a virtual terminal or mobile device that works with an integrated app, for example, would be a better option.


Below is a checklist of all the points that you need to consider when choosing your merchant account provider:

  • - Customer Service: Both big and small problems can occur in any situation without warning. Although it is likely to be rare with merchant accounts, it is imperative that you choose a provider who is able to offer that unique customer service journey. Payments and uninterrupted cash flow is vital for your business so you want a service that will be able to help you whenever you may need it.
  • - Check Reviews: We are fortunate to live in the open society that the internet has brought to us. Search on Google or Bing and see the experiences and reviews other customers have had. If you are struggling, have a look at client testimonials as they provide a great insight into what type of experience the provider can offer.
  • - Rates and Fees: We’ve already discussed fees in detail but it is worth mentioning again as low fees does not necessarily mean they are the best option for you. Discuss the fees and the rates with the provider and make sure everything is clear and remember that high fees tend to come with higher quality of product.
  • - Payout Times: You will feel confident with regards to receiving your payments but you also need to be aware of exactly when you will receive them. Each credit card processing provider and acquiring bank will have varied remittance times and that also depends on your risk category. Typical payout terms can be weekly or daily but it is important you understand this from the first conversation with your potential merchant account provider.
  • - Contract Terms and Conditions: Look at the contract before you sign in. Read each term and condition and feel confident that you understand each specific detail. Keep a copy safe and refer to the appropriate parts when you need them. If you are experiencing any doubts after you have signed up, you will usually find answers to those questions in the initial contractual agreement.
  • - Integration: How the merchant account will be integrated will depend on how you are accepting payments. Online, by the phone and POS terminals all require different integration based on the software of the provider. Ensure that you know how fast and easy the integration is and whether there will be any delays in your sales process due to this. A fast and easy process is becoming more and more common as technology grows.


A payments platform of Fiserv, CardConnect helps thousands of merchants across the U.S., from Fortune 500 to small startups, accept billions of dollars in card transactions every year.

CardConnect’s mission is to grow commerce with simple, secure and integrated payments through our patented tokenization, secure gateway and omni-channel payment acceptance solutions.

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