Merchant Accounts 101: Everything You Need To Know About Online Merchant Services Explained

It won’t be wrong to say that excitement, enthusiasm, and happiness is not all you feel for being a first-time business owner; it actually can be a very daunting and frightening experience. You will have to comply with a dizzying array of legal requirements, and in addition to that, you might also have to have a working knowledge of inventory management, credit card processing, and whatnot.


And at one point or another, you will come across the term “merchant services” and merchant accounts, about which you definitely need to know everything.

In other words, just to simplify this a little, unless will only accept paper check payments and cash in your startup, you might want to understand merchant services: what these services are and where to get one for yourself.


This remarkable tool is imperative to providing your potential customers the largest range of secure and convenient payment methods. On the whole, the term tends to encompass the behind-the-scenes process by which businesses accept payments, the companies businesses work for this very reason, and the hardware and software utilized in taking and processing payments.

In this article, we will try to break down merchant services and go into the depths to answer the questions such as what are online merchant services? What exactly is a high-risk merchant account online?And how to apply for a merchant account online?

It surely does sound a lot of work, but don’t worry, we know how exactly to make it a fun class for you.

Let’s get started then!

What Are Merchant Services?

Merchant Services

One of the main reasons why merchant services and merchant accounts are so confusing to both business owners and layman is that these terms are used to refer to a variety of financial services and procedures.


However, as the payment technology has evolved with the advance in technology in general, the term merchant services has also broadened into an umbrella term in regard to many of the tools and procedures involved with eCommerce payment processing solutions.

So, a general definition for the term “merchant services” can be all the services and technology that businesses use in order to accept and process payments other than cash. This includes everything from the processing services for debit and credit cards, eChecks, and ACH payments to the newer mobile wallet services such as Google Pay and Apple Pay.  Not to mention, it also encompasses credit card terminals, point-of-sale or POS systems, payment gateways, virtual credit cards, and mobile payment processing systems.

Note that there also are a variety of ancillary services that are sometimes bundled with merchant services, no matter it is inventory management software, loyalty card solutions, online reporting features, and many others.

Keep in mind that these do not fall under the rubric of merchant services because they are not required to enable your business credit or debit card transactions. No doubt, they still can be quite useful, though. That brings us to the working of and the steps undergoing this eCommerce payment processing solution.

How Do Merchant Services Work?

So, what is all this fuss about merchant services, and how does it work?

Well, the answer to this question depends on a few factors, such as how the payments are being accepted, what kind of payments are being accepted, and what provider is doing all that for you. However, on the whole, there is a simple and basic process behind all this.


Now the process begins right after a customer hands you their credit or debit cards and ends as soon as the transaction to be made is approved. So, that is why the term “merchant services” does not really apply to cash payments. After all, do you really need such a service to take cash payments? No!


And with that in mind, what actually happens is, the merchant services procedure involves a card processing terminal and technology, which comes from a merchant service provider, necessary to run the credit or debit card payment through it. You might be wondering what is a merchant service provider really responsible for when you swipe the credit card. Well, essentially, the behind-the-scene process going on boils down to this:

1. The customer’s card is swiped, and the information or data is entered into the payment terminal.

2. The next thing is that the payment processor tends to transmit this information and ensures it with the customer’s bank account before approving or denying the information. So, you cannot really think of fooling a shop owner with an empty card.

3. Now, if the customer’s bank accepts this transaction, you can approve the payment through your terminal, and the purchase will thus be successful.

4. When the purchase is completed, the payment processor will take their fees and deposit the remaining money or funds into your merchant account. Just to clarify that the merchant account is the bank account required to approve your credit card payments.

5. Isn’t it fascinating that all this happens in just a matter of a few seconds? You really cannot thank enough technology!


Moving ahead, this process is ultimately handled by a merchant service provider, which very often is called a payment processor. In short, all the companies that facilitate this process or provide this service to merchants, businesses undoubtedly would not have been able to approve any credit or debit card payment from their potential customers.

What Are Some Merchant Service Products?

Some Merchant Service Products

The next significant part of what makes up merchant services is all the different tools and products involved in the process.

And without any delay, the following are some of the products that merchant service providers offer for accepting and processing payments:


1. Payment Gateways

2. Credit card Terminals

3. Point of Sale Systems

4. Virtual Terminals

5. eCheck/ACH Processing

Payment Gateways

If you plan to have an online presence for your business and make sales through a website or any social media online store, you definitely will need a payment gateway for processing all the transactions. For your understanding, know that payment gateways perform the same function as physical credit or debit card terminals do, i.e., simply connecting the customer’s payment data with the provider’s processing network in order to approve the transaction and send the money from the sale.

The fact that not all merchants require a payment gateway, they are most of the time offered as a separate feature with an additional monthly or yearly fee.

However, it nowadays has become increasingly common for merchant service providers to offer a gateway that is involved in an integrated payment processing system that is designed to not only support retail, but eCommerce sales channels as well.

Credit card Terminals

Of all the merchant services you might want to have for your business, credit and debit card processing is obviously going to be the most significant one. Let’s see why.

Suppose a customer wants to pay for some purchase made at your store with a debit or credit card. Now you will certainly want some cold, hard cash to make its way into your business account, and that cannot happen unless you have a service to process this transaction. An important thing to keep in mind here is that you can get credit or debit card processing through an online merchant account or via a payment service provider (PSP).

In either of these two cases, the provider will rely on a direct, larger processor, also known as a backend processor, to accept and process the transaction.


Note: If you happen to run a small business, large direct processors such as Elavon and First Data might not be great choices for you.  It would better to instead go with Stripe and Square.

Point-of-Sales Systems (POS)

As we have talked earlier about point-of-sale systems, it is basically a credit or debit card terminal with built-in additional integrated software services. Inventory management can be a famous and well-known option, however, there are software add-ons for scheduling, employee management, customer data, and many others.

While a POS can prove to be a worthwhile investment for your new and existing business, it can also be overkill for others.

So, be careful of random sales representatives trying their best to sell you point-of-sales systems if you don’t feel the need for it as yet.  If you want to learn more about POS, this piece of writing might answer all your questions and confusion: Everything You Need to Know About POS Systems.

Virtual Terminals

Virtual terminals are mostly used by mail order or telephone-order businesses. It is a software application that enables and allows a desktop or laptop to function as a credit card terminal. The transactions can either be manually keyed in or dipped with some compatible card reader, which is connected through a USB or Bluetooth.


Note: Retail merchants, in most cases, might have to pay significantly high processing rates if you manually enter the card information instead of using a card reader.

eCheck/ACH Processing

now that we have talked about credit and debit card processing, you definitely want to know about ACH processing or eCheck processing because your customers will very often pay you by check. While the old-fashioned paper checks that have been around for years now, are declining in popularity, they can be approved without the need for a check processing service. Yes, you heard it right!

eCheck and Automated Clearing House payments bring convenience and advanced security to pay by check, allowing you to scan every physical check by your customers for processing or approve an ACH payment done on your website.

While there are providers that include this feature with every merchant account, there are others that can charge you an additional monthly fee for this, typically between 20 to 30 dollars or so.

How to Choose the Right Merchant Processing Service for Your Business?

Considering all of the above-mentioned facets

Considering all of the above-mentioned facets, it is now easy to see why the term merchant services can be so overwhelming and confusing.

And with all the different processes, companies, products and stakeholders involved in mind, you might be in another dilemma of choosing the right merchant processing services for your business. You might be asking yourself:


What is the provider best suited for your business?

How do you compare providers?

And finally, how do you know what to look for?


The list of questions might just go on and on, but let’s not get into that for now. Keep in mind that at the end of the day, there are hundreds and thousands of merchant service providers you will find online or get to know about from your friends. Also remember, that there always will be a provider that will be the right choice for every business out there. Having said that, here a few questions you need to find answers for in order to filter out the perfect one for your business, especially if you have just hit the road:

accept your payments

How do you plan to accept your payments?

It can either be in-person payments or solely online. If you have figured that out, great, we can move forward.

What type of payments will you be accepting?

You can go with either credit card and debit card payments or a contactless one. The choice is yours.

What type of software or hardware will you need?

Will a simple credit card terminal work for you, or do you need a full POS system? Also ask yourself if you need a payment gateway.

How much can you afford?

By now, you might have a few options to choose from, and the pricing structure will further simplify it.


Clover and Square are great options if you prefer in-person processing, while Veem and Authorize.Net are perfect for online merchant solutions. But again, you will have to make the final call considering the budget you have for your business.

Make sure to explore and ask as many questions as you can when making a purchase. If a company does not seem to clarify your confusion, remember you always have the option to look for another one.


Let us know if you find this guide helpful, and leave your queries and suggestions in the comments section below!

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