Online payment systems have never been as simple as they are today. With a credit card and a click of a button, a purchase can be made. Card merchant services provide businesses with the capability to accept payments through credit and debit cards, the choice of payment across the globe today.
In the early 2000s, merchants had to apply for how to sell merchant services special accounts with banks. Once the accounts had been made, banks accepted the payments from the consumers on behalf of the company, transferring the money from the bank that issued the credit card to the bank of the company.
Reviewing Merchant Services: The Two Types
Today, the selection is no longer that limited. There are now two types of these services: processors and resellers.
Processors, also known as acquirers, are banks that receive transaction details from the merchant, communicate with financial institutions in approving the transaction, and deposit funds into the merchant’s bank account when a purchase has been completed.
Resellers, also known as Independent Sales Organizations (ISOs), are third-party organizations that resell the offered products and services of one or more processors for a higher fee, because these institutions are not limited to the rules and regulations that most banks have. Considered as middlemen because they do not perform the services sold, these entities have an agreement to sell the services of the bank or the bank/processor alliance.
Merchants stay with their existing banks directly for credit card processing because:
• banks will waive service fees for allowing them to choose the provider
• they are more convenient
• they cut out middleman costs
• they have a sense of loyalty to the bank
The main disadvantage of choosing a processor is that because this industry is not their main concern, banks will have a more limited knowledge of credit card processing. Because of this, customer service will be compromised, processing equipment costs higher or ISOs may be hired anyway.
ISOs offer all the products that processors have because these organizations can resell for multiple processors and may contract with other providers for support. Some studies have shown that ISOs are the more commonly chosen providers, handling roughly 80% of all merchant accounts, with fewer than 200 of the 700 to several thousand organizations providing legitimate operations. This cause for concern was reported because a lot companies filed complaints against ISOs that advertised low rates but charged excessive fees for processing and equipment once the contracts had been signed.