Down to Business: Merchant Services

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A professional on his lunch break walks down to a local eatery and enjoys a turkey club with avocado lime spread and a crisp dill pickle spear on the side. For twenty minutes out of his busy day he is calm, and he can already feel the tired 2 o’clock feeling coming on. He reaches for his credit card, swipes and in an instant his tab is settled. Let’s focus on that instant… blip… that instant when funds are transferred from consumer to merchant.

To break it down; the customer swipes his card through the terminal to pay $10.00 for his lunch. The terminal reads who the customer is and contacts the bank that issued the card. The bank at this point, must make a decision on whether or not to pay the merchant. Could the transaction be fraudulent? Are there funds available? Upon approval, the consumer’s bank sends $10.00 to the merchant’s bank, and then the bank deposits $9.80 into the merchant’s account. That $0.20 is sent back to the consumer’s bank and it is then split five times: with the issuing credit or debit card company at a predetermined rate, the issuing credit card brand (i.e. Visa, MasterCard, Discover, etc.), the processing company, then to an ISO selling the processing (if applicable), and finally, it is split for the last time if there is an independent contractor selling the processing for the ISO. We’re certainly not splitting the atom, but this is getting eerily close to nuclear fission.

At the end of each business day, all of the credits and fees are tallied by the processing company. After about 2 business days, the settlement is deposited into the merchant’s bank account. The processing fees are typically debited from the merchant’s account 3-5 days after the end of the month. Phew – that is quite the process! Why would a processing company go through all of this effort for pennies on the dollar… or sometimes fractions of a penny? Why would a business pay to have customers pay them?

Market trends and statistics provide an overwhelming answer to these questions.   According to Javelin Research, in 2011 only 27% of all in person sales were made with cash. According to the SEC in 2011 – $17,782,000,000,000.00 were spent using Visa, MasterCard, American Express, Discover and Diners Club. When you start to take small percentages of nearly 18 trillion dollars, it becomes clear just how lucrative this business can be. For the business owner, according to Ari Shapiro of NPR, consumers purchase 40% more when they shop with a credit card vs. cash. Many interesting clinical psychological studies break down the why behind this.

So what does all of this mean for our small businesses? Well, with so many entities fighting for a slice of the dollar, the competition among merchant services providers is stiff. Given the dynamic nature of the industry, loyalty, transparency and honest hardworking member service are hard to find. Perform your due diligence and interview various clients to see just what kind of service is actually provided. A few minutes now will pay dividends later!

If you’re interesting in merchant services for your business, you’re in luck! First Financial has a new processor who provides great service and excellent rates. If you would like more information on merchant services or business products and services, contact Business Development Manager, Matthew Brazinski, at 732.312.1421 or simply leave a comment below! 

*Sources: Psychology Today, Nerd Wallet, Huffington Post, and Host Merchant Services.

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