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How to find the best merchant account for small businesses?

As a business owner, it is essential to manage your finances effectively, optimise daily operations, and facilitate in-store and online payments. However, to achieve these goals, you need a dedicated merchant account

As cash payments decline, both businesses and customers seek convenient payment solutions, which leads to an increased interest in digital financial management. As a result, many merchant service providers now offer business accounts with flexible contracts and transparent rates.

While having a wide range of options can be helpful, navigating the variety of merchant account providers can be a challenge. Keep reading because this blog post will share tips to consider when comparing merchant accounts for small businesses and guide you to find the perfect solution for your needs.

Understanding the merchant account and the process

Merchant accounts are specialised bank accounts that are designed specifically for businesses to manage their finances and accept card payments. For that reason, they are also called business accounts.

While traditional financial institutions commonly offer merchant account services, payment processors extend such solutions, sometimes bundled with hardware, software and financial services in comprehensive packages.

There are primarily two types of merchant accounts:

  1. Contract merchant accounts: These operate on fixed-term agreements and offer lower transaction fees along with a monthly account maintenance fee.
  2. Mobile merchant accounts: These operate on a pay-as-you-go basis. There are no long-term contracts, and they often come with zero monthly fees, which makes them particularly suitable for small business owners.

Key components of a merchant account

Merchant accounts have several essential components that are beneficial for every business owner.

These are as follows:

  • Payment processing software: This includes providing physical card machines or services such as an online payment gateway, virtual terminal and payment links.
  • Financial management tools: Merchant services often offer reporting tools, inventory management systems, CRM capabilities and recurring payments to streamline business operations.
  • Security measures: Robust security protocols, such as encryption and compliance with industry standards like PCI DSS, are employed to protect customer data and prevent fraud.

Importance of merchant accounts for small businesses

To open a merchant account is not only a convenience and strategic approach but a necessity in today’s business world. Providing a variety of financial tools empowers merchants of all sizes to enhance customer experience and optimise operations.

Moreover, merchant accounts are a must for businesses that want to accept debit or credit card payments. These can be in-person payments, online transactions, or over the phone. Funds from card transactions are deposited into the merchant account, allowing business owners to transfer them to another account, pay with them through their dedicated debit card, or withdraw them as needed.

How to choose the right merchant account for your small business - Factors to consider

How to choose the right merchant account for your small business – Factors to consider

When you consider which would be the best merchant service provider for your needs, the array of choices available can be confusing. In today’s market, there are many options, and it’s easy to become lost in the research process while navigating through various features and functionalities.

To help you with the decision-making process, we’ve compiled a list of critical factors to consider when analysing merchant accounts for small businesses.

Merchant account costs

When you select the right business merchant account, financial considerations will take centre stage. It’s crucial to understand the various merchant service fees, such as setup fees and transaction costs, associated with opening a merchant account to ensure you make a budget-friendly decision. 

Initial costs

Setting up a merchant account often involves upfront costs that businesses should carefully consider before committing. These initial expenses can vary depending on the payment processor and the type of account that is established.

One common upfront cost for traditional financial institutions is the setup fee, which covers the administrative work and processing required to create the new merchant account.

In addition, businesses may also encounter equipment or software fees. For example, if the merchant requires a card machine, they may need to purchase or lease this equipment separately. Similarly, if the account includes access to specialised software for processing payments or accounting, there may be additional fees.

Account maintenance fees

Merchant account maintenance fees are recurring charges required to keep the account active and operational. They are typically charged on a monthly basis.

Maintenance fees cover the ongoing support and services provided by the merchant account provider. These services may include customer support, account monitoring, security updates, and access to online reporting tools.

The fee can vary widely depending on the payment service provider, the type of account and the services included. Additionally, merchant account costs may be structured as a flat rate or a percentage of the business’s transaction volume.

On the positive side, some merchant service providers charge zero monthly fees, such as myPOS. This is to avoid burdening small businesses with low transaction volume or irregular cash flow.

Transaction fees

Transaction fees are incurred each time a payment is processed. Typically, they consist of two components: a fixed flat fee per transaction and a percentage fee based on the payment amount. 

These transaction processing fees can vary widely depending on factors such as the type of transaction (e.g., card-present or card-not-present) and the card scheme (e.g., Visa, Mastercard, American Express).

Card-present transactions, where the customer uses a physical card or a mobile wallet on the card machine, typically come with lower fees due to the lower fraud risk compared to card-not-present transactions.

In addition, merchants may encounter other miscellaneous fees, such as authorisation fees, batch processing fees, chargeback fees, and costs for initiating outgoing transfers or international payments.

Contract lengths

Another crucial consideration is the contracts associated with signing up with a payment provider. Some merchant account providers offer contracts with no long-term commitments, allowing you to terminate at any time. This flexibility is particularly valuable for small and growing businesses.

Ensure you assess the flexibility, contract lengths and termination clauses payment processors offer. Opting for an account with no fixed-term commitment or one that allows adjustments without hefty penalties ensures your business can adapt seamlessly to changing circumstances.

While longer contracts may be attractive because of certain advantages they offer, it’s vital to consider the potential penalties for early termination. Unforeseen events or dissatisfaction with the service might necessitate ending the contract prematurely. Understanding the financial consequences beforehand can help you avoid negative surprises.

Merchant account for small business

Features

Merchant account features includes many tools and capabilities to support efficient payment processing.

Here’s a breakdown of some essential features to look out for:

  • Multi-Currency Support: For businesses serving an international clientele, having the option to accept customers’ payments in various currencies and transfer funds between different currency accounts is crucial.
  • Reporting Capabilities: Access to reporting tools, such as sales tracking, expense categorisation and customer data analysis, empowers businesses to get valuable insights into their performance.
  • Payment Links: Payment links offer a convenient method to accept electronic payments remotely, regardless of the customer’s location. It allows you to reach a broader audience.
  • Online Payment Services: Website-building tools, payment gateways and virtual terminals, which are essential for e-commerce businesses, can also be particularly beneficial to businesses that want to boost their sales by accepting payments online.
  • Invoicing: Some accounts offer customisable templates and automated reminders that allows businesses to create and send professional invoices to customers and ensure timely payments.
  • Accounting Software Integration: Integrating with accounting software simplifies financial management tasks by automatically syncing transaction data, eliminating errors caused by manual entry and saving time.

Above, we’ve outlined some key features you should ensure your chosen payment service provider offers. These features will help you simplify your financial tasks, easily accept in-person payments, streamline your online payment processing, and ultimately enhance your cash flow.

Scalability

Scalability is a crucial consideration when evaluating merchant accounts for small businesses. As businesses grow and evolve, their payment processing needs may change, making scalability a critical factor when they select the right payment provider. 

When setting up a merchant account, it’s essential to consider how well it can accommodate your business’s future growth. A reliable merchant services provider will work with you to ensure your account is set up to process payments efficiently. It includes accepting various forms of payment, such as debit card payments and credit card transactions, both online and in person.

An e-commerce merchant account, for instance, should be able to seamlessly handle an increasing number of electronic payment transactions as your online sales grow. Similarly, if you are considering expanding your customer base or offering new products or services, your merchant account should be flexible to support these changes.

Reviews

When you are looking for merchant accounts for small businesses, it’s crucial to research testimonials from other companies to check the reputation of your potential payment provider. Pay close attention to feedback regarding reliability, ease of use and overall customer satisfaction.

Checking reviews can provide valuable insights into how well a merchant services provider handles various aspects, such as the underwriting process or customising services to your unique requirements. Look for feedback on how smoothly businesses could set up a merchant account and begin to accept credit card payments.

Additionally, reviews can shed light on the level of customer support and assistance the financial institution provides. A reputable provider should be responsive to the issues or concerns that may arise during the setup process or while processing transactions.

Thoroughly researching reviews and testimonials from other businesses can help you better understand merchant account providers’ strengths and weaknesses and make a more informed decision that resonates with your small business’s needs.

What kind of merchant account services do you need?

When considering merchant accounts, it is essential to assess your business’s unique needs and the types of payments you plan to process. 

Here are some of the most common services a business may need: 

1. In-person payments: If your business operates from a physical location and accepts payments in-store, you’ll need a merchant account provider that also provides card machines or integrated payment systems.

2. Mobile payments: Mobile payment tools are essential for businesses that operate on the go or participate in events and markets. Look for a provider that offers portable card machines, smartphone payment apps or other solutions for on-the-go payment processing. 

3. E-commerce payment solutions: If you sell online, you’ll need a merchant account that facilitates easy integration of an e-commerce payment system or provides access to payment links.

4. Various payment methods: Whether you’re processing payments in person or online, it’s essential to support all major credit and debit cards and contactless methods. It ensures you can accommodate a wide range of customers.

Carefully consider the services you need before you choose a merchant account to apply for. It is also essential to consider any other services you might need in the future. Conducting thorough research from the start will make your decision easier and pay off over time.

How much does a merchant account cost?

Merchant account costs can vary widely based on factors like the provider, business type and transaction volume.

Setup fees can range from £0 to £150. However, some payment providers may waive fees, especially for small businesses or those with higher transaction volumes. On the other hand, monthly maintenance fees can range from £0 to £30 and will cover essential account maintenance and support.

Additionally, as already mentioned earlier in the blog post, transaction fees include a percentage of the transaction amount and a flat rate per transaction. The percentage can vary from 1% to 3% based on factors like card type and transaction method.

Thankfully, numerous payment service providers offer cost-effective options for small businesses. For instance, myPOS adopts a pay-as-you-go approach, where merchants are charged only for debit and credit card processing, without setup or monthly fees.

Overall, the total cost of a merchant account in the UK depends on the provider and business needs. The business must compare options and fee structures to find a suitable solution within its budget.

Setting up merchant account for small business

Setting up a merchant account – Step by step

Applying for and setting up a merchant account is a straightforward process, though it may initially seem difficult due to the need to prepare documents and undergo verification. However, with our step-by-step guide, you’ll be able to navigate the process with confidence.

Here is a breakdown of how to get a merchant account:

  • Step 1. Research and Choose the Right Account
    Start to research merchant accounts for small businesses. Look for reputable payment processors that offer transparent fee structures and essential features.
  • Step 2. Gather Necessary Documents
    Before applying, gather important business information, such as your business licence, proof of address, financial documents and details about your business structure.
  • Step 3. Apply for a Merchant Account
    Now, it’s time to apply for your new merchant account. Fill out the application form accurately and provide any requested documentation promptly to expedite the process.
  • Step 4. Undergo verification
    After submitting your application, the merchant account provider will review whether you are a legitimate business. They will verify the personal and business information you provided and check your credit history.
  • Step 5. Accept Payments
    Once your application has been approved and your payment processing capabilities are in place, you’re ready to accept credit and debit cards and explore all the platform’s features.

Following this step-by-step guide ensures a smooth application process, and once you’ve completed it, you’ll be equipped to manage your business’ finances efficiently.

Conclusion

In conclusion, selecting the best merchant service provider for your business requires thoughtful evaluation of your unique requirements and the services available.

It’s essential to carefully assess the associated costs, including setup, monthly and transaction fees, and compare contract lengths, terms, and features offered. Consult first-hand opinions through reviews and testimonials to ensure your potential payment provider is reputable. 

Acquiring a merchant account is a straightforward process. When you conduct detailed research and prepare the necessary documentation beforehand, you can ensure the application process goes smoothly and get approval in no time.

Remember, thorough research and careful evaluation from the start will simplify your decision and lead to long-term benefits for your business.

Frequently asked questions

Businesses of all sizes, including startups, sole proprietors and larger enterprises, can apply for a business account. However, specific eligibility criteria must be met. To apply for a business account with myPOS, you must be registered as self-employed, a sole trader, a limited company or an LLP.

Yes, online accounts are secure. Merchant account providers are required to adhere to industry standards and compliance regulations to protect against unauthorised access, fraud and data breaches, ensuring a secure transaction environment for both merchants and their customers. Additionally, many reputable providers, like myPOS, utilise advanced encryption techniques and security protocols to further safeguard personal and financial information and customer data.

Identity verification typically involves filling out personal information, such as name, address, and contact details, and submitting a photo of an official identification document, such as a passport or driver’s licence. Additionally, some providers may require further verification steps, such as a video call or biometric authentication, to confirm the applicant’s identity and mitigate the risk of fraud or unauthorised access.

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