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When we talk about business, we think about a large corporation with thousands of employees working it and the firm earning revenue and profits in millions of dollars. But is business all about the way we picture it? The answer is NO.
Today, with the increased online presence of almost everything, the business scenario has changed. There are thousands of businesses having no office at all and still functioning with large revenues. And large scale businesses are not the only ventures qualifying as businesses.
Currently, small businesses are reigning. According to a study by Forbes Advisor, in the US alone there are a whopping 33.2 million small businesses. The study also highlights those small businesses created around 1.1 million jobs in the last year alone. This stat shows that although large corporations are taking the spotlight, small businesses are the real pros.
Hence, it can be said that small businesses are very significant for the business world. So, small businesses need to focus on providing the utmost convenience they can provide to their customers to keep scaling their business.
But, managing the payments for small businesses can be quite a task. That’s where merchant accounts come into the picture.
In this blog, you will learn what merchant accounts are, how it works, their benefits for small businesses, and how to choose the right merchant service provider.
What are merchant accounts? How does it work?
A merchant account is a bank account that allows businesses to accept payments by debit or credit card. A merchant account is set up through a merchant service provider that facilitates credit card transactions for businesses.
When a customer makes a purchase using a credit or debit card, the funds for the transaction gets deposit into the merchant’s account. The merchant account provider then processes the payment and transfers the funds to the business’s bank account which may take 3-5 business days to settle and reflect in the account.
How does a merchant account work?
The merchant accounts are the merchant payment solutions that act as an intermediary between the consumer’s bank account and the business’s bank account. The merchant account works in four simple steps:
- Payment: The consumer makes payments by swiping the card or through the online checkout process of card payment.
- Payment processing: The merchant account sees the payment request and sends the request for the amount of money ahead to the customer’s bank or card issuer.
- Authentication and approval process: The banks then authenticate and approve the payment. Then funds are successfully processed to the merchant account.
- Successful payment received: The merchant accounts receive the money and then the funds are transferred to the business’s bank account.
Benefits of considering a merchant account for a small business
Now that we know what a merchant account is and how it functions, we also understand how important it is to have a merchant account for a small business. Here are the benefits of a merchant account that will highlight why should a small business have a merchant account.
Enables cashless Payments
Cashless payments are in high demand as a result of COVID and digitalization. The small businesses are either small shops or stores or online e-commerce businesses. And for small businesses that operate in-store or online, customers should be able to make payments using an online payment solution in a real-time and most convenient way.
With a merchant account, the small business can accept credit and debit card payments through both in-store and online checkout options of a small business. This makes the payments entirely contactless and cashless for customers. Hence, the benefits small businesses get from a merchant payment is incomparable.
In this digital world, if a business only works in cash, the revenue stays limited to the customers who carry cash. And the customers who carry cash are going to make limited purchases based on their cash on hand. This way, a small business with no access to online payments suffers indirect monetary losses.
The merchant account enables cashless payments which makes it convenient to make purchases without thinking of the limited cash on hand. Also as the cash doesn’t have to go straight in notes and coins from their pockets, it feels more comfortable to pay.
With wide access to funds in credit cards, customers can think broadly while making purchases and so there can be a likely increase in the no. of products purchased. Thus the sales of the business increase and the revenue increase manifold.
Streamlines cash flow management
With all the payments happening electronically, the payment process becomes very fast and easy. The payments are proceeded and settled within 2-3 days of the payment made by the customers. So, the efforts of record keeping and tracking if every transaction is getting settled or not are minimized.
With ease in the tracking of payments, the cash flow of the business is effectively streamlined. Thus, the set up of merchant accounts makes it easy for the small businesses to better manage the money be it for receiving or making payments within the country or through cross-border transactions for supplies.
Secured payment processing
As discussed above on how merchant accounts work, we came to know that the process of settlement of funds involves authentication and verification of payments. This means that the payment process goes through a security process before it settles into the business’s bank account.
Apart from that, the merchant account services follow the PCI DSS security standards formulated especially for card processing. Hence, there are negligible chances of any security branches happening when using a merchant account.
Ensures business legitimacy
For any business, its reputation plays crucial. The goodwill of the business decides how much would customers be able to trust the business.
The merchant accounts when linked with a good merchant service provider and the customers are able to make payments in a safe, secure, and convenient manner, the customer finds the business legitimate.
Improves customer Satisfaction
With merchant account services, businesses are able to track payments and generate important details for analytics over their system. With these details, the businesses can maintain accurate accounts and gauge the sales and where it is coming from in the majority.
Data about sales allows businesses to improve their business operations and product/service to keep their customers satisfied. Because satisfied customers mean more revenue, more growth, and a successful business.
Choosing the right merchant service provider
Now that we know from the benefits the importance of merchant accounts. So, as a business, you definitely need a merchant account. And to set up this merchant account, you need the right merchant service provider.
The merchant service provider will ensure how your business’s payments get processed. Therefore, when choosing the merchant service provider, you must consider these points:
- The customer review:
The customers here are the businesses that have already opted for the merchant service provider you are thinking of. So, before choosing a payment service provider, you need to google them and read the previous customers’ reviews. If they are positive, you can give a green single to this factor and vice versa.
- Customer support and maintenance service
The merchant service provider you choose must be able to give good customer support and maintenance service when required, looking at the criticality of the payment process.
- Compared fees
The fees that the merchant service provider charges for giving you the merchant account solution are essential for a small business where they focus on cost-effectiveness.
- Check for hidden fees
The merchant service provider should not come with additional or hidden fees because it can become an obstacle to the business goals and may even hamper the business growth. So there must be thorough research on the same.
Overall, merchant payment solutions are essential for small business that wants to succeed and stay ahead of the competition. The merchant solutions not only accept card payments but also make it secure, convenient, and smooth for the business to maintain their business as well as the customers. Because, for small businesses, goodwill and customer satisfaction are paramount, merchant accounts are providing them.
Author – Bio
Nikunj Gundaniya, Product manager Digipay.guru, one of the leading fintech solution providers, which provides mobile finance application development services. He is a visionary leader whose flamboyant management style has given profitable results for the company. He believes in the mantra of giving 100% to his work.