“Credit or debit?” When customers pay with plastic, they are often given a choice to ring the card through as a debit transaction or as a credit transaction.
Does it matter which option they choose? Should they decide to run a debit card as a credit transaction or as a debit transaction?
Although it might not seem to matter, whether a customer chooses debit or credit at the register can impact your bottom line as a business owner. The merchant fees for debit cards are different from those for credit cards. The choice between debit and credit can also affect the customer.
Take a look at the difference between debit and credit card transaction charges and learn more about what a customer’s choice means for them and your business.
Merchant Service Providers vs. Banks
When you start a small business, there’s one process that can be a little confusing — choosing a credit card processing service. Whether you’re a brick-and-mortar establishment or you’re starting up in the world of online retail, selecting a reliable service to process your payments is crucial to the success of your business. To ensure that money from your customers makes it into your bank account, your business needs merchant services.
Merchant services is a term that refers to the array of systems and products that allow your business to take credit and debit card payments. A point-of-sale (POS) system — terminal, software and all — fall under the merchant services umbrella. Merchant service providers (MSPs) are also called payment service providers (PSPs) or payment processors. When these services are provided for online stores, the provider is sometimes known as a payment gateway provider.
You have a range of choices when it comes to selecting a credit card processor, and one of the biggest decisions is whether to go with your bank or a merchant services provider. We’re going to break down what the differences are so you can confidently choose the right type of payment processor for your business.
How Payment Processing Works
Before picking a bank or MSP merchant account, it helps to understand how payment processing works. A lot happens in the few seconds it takes for a payment to go through in person or online.
What happens after a payment is made?
- The merchant transmits the details of the transaction to their acquiring bank or that bank’s processor via credit card machine, software or payment gateway.
- The acquiring bank or processor receives the information and sends it to the correct card network, which routes the information to the cardholder’s bank for approval.
- The credit card issuer gets the details of the transaction from the acquiring bank or processor. The issuer checks the validity of the transaction information and ensures the cardholder holds a sufficient balance.
- The result of the validation is sent from the card issuer to the acquiring bank, and the transaction is approved or declined.
An Emerging Alternative
For most of history, banks were the primary processors of any and all payments. Through individual merchant accounts, they housed the processing platforms and handled authorizations as well as all the connections to major credit card companies. Most business owners wouldn’t think twice before opening a merchant account with their bank, simply because there were no other options.
Unfortunately, banks caught on to the possibilities inherent in being the only game in town and began cranking up processing rates they offered to businesses. However, the rise of eCommerce came with complications banks hadn’t foreseen. It became obvious that it wasn’t sustainable for banks to support all the technology and services required to handle modern business transactions while still turning enough profit.
To meet the growing needs of modern business owners, third-party MSPs emerged. Banks still offer merchant accounts for small businesses, and opening a merchant account at your bank still has some perks. However, merchant service providers are designed to make payment processing easier and more affordable than what your bank can offer.
How Banks and MSPs Are Different
Opening a merchant account with your bank can seem like the most obvious choice from a convenience standpoint, but it may be less of a savvy decision than you think. Three huge differences with merchant accounts vs bank accounts might make you see bank-based merchant accounts in a different light.
Applying for a merchant account at your bank is more complicated than you might imagine. You need your business license on hand, and the application requires a ton of information. You may find yourself filling out information on your employment history, providing bank statements and pulling credit histories. On top of that, banks are still notorious for being slow. You may end up waiting for several days just to get your account approved.
Once you get the merchant account type your bank allows, your bank is likely to pass you off to an acquiring partner to set up payment processing and get the appropriate hardware and software — so you won’t even benefit from any relationship you have with the bank.
Banks are not the place to open a merchant account if you expect good service. Net Promoter Scores (NPS) is a metric commonly used to measure businesses based directly on customer feedback. The scores have a range of -100 to 100, and the banking industry scores a low average of 35. Several of the largest U.S. banks actually have scores reaching into the negatives.
Banks started offering merchant accounts and services because it was convenient for them. You won’t be able to call up your bank and ask questions about the hardware you’ve purchased, because they simply don’t have that expertise. The best third-party MSPs, on the other hand, treat customer service as a core offering and take pride in providing the best service and support to business owners.
Banks tend to be somewhat opaque when it comes to terms, conditions and fees for merchant accounts, and it’s one of the biggest disadvantages of bank card processing. They pitch their services as a convenience and expect you to pay extra for it. There may be fees attached to your application, or the bank may charge you an additional monthly fee to access your money if your business checking account is with another bank.
Annual fees, contract fees, statement fees and unexpected markups are all par for the course when using a bank for payment processing and other merchant services. A good MSP will be up-front and transparent about how they charge for their services, allowing you to make a more informed decision.
Gain Momentum With Velocity Merchant Services
MSPs are not created equal, and Velocity Merchant Services knows that. We work hard to provide your small or mid-sized business with the best value in payment processing, through exceptional client care and transparent pricing.
With more than 20 years of experience in the industry, Velocity Merchant Services can help you find the payment solutions that make sense for your business. We work with you to customize options, and even provide guidance to help you avoid paying for equipment and features that don’t benefit your business or your bottom line.
If you’re ready to work with an MSP with the flexibility and support your business needs to succeed, schedule a free consultation with Velocity Merchant Services. Our small business specialists are standing by to discuss how we can help you go further, faster.
How VMS Can Help?
The more payment options you can offer to your customers, the better. Although some people prefer to use a credit card for payments, others prefer to use debit.
Your customers may like the idea of accountability attached to paying with their debit cards. They don’t receive a monthly bill, there’s no penalty interest rate on their checking account, and they may find it’s easier to live within their means because they’re not borrowing against themselves only to pay off the debt later. For those people, as a merchant, you should always offer the option of PIN-based debit card acceptance so as not to miss out on potential sales.
- If you’re interested in offering your customers the option to pay with either debit or credit cards, Velocity Merchant Services can help. We’ll set you up with a merchant account, help you choose the equipment that best meets your needs and will provide personalized customer service and tech support when you need it. We’ll also work with you to help you understand the fees involved with debit and credit transactions and will aim to provide you with the lowest rates possible. To learn more, contact us today.